Definition
Defensive Stock
A defensive stock belongs to a business whose demand stays steady regardless of the economic cycle, offering stability in downturns.
Defensive sectors, FMCG, pharmaceuticals, utilities, and consumer staples, sell products people need in good times and bad (soap, medicine, electricity). Their earnings and prices are relatively stable, with low beta, making them safe havens when markets turn volatile.
Defensives typically lag in strong bull runs but outperform in corrections and recessions. Investors rotate into them for protection during uncertainty, while cyclical bulls favour higher-beta sectors. They form the stable core of many conservative portfolios.
Related terms
- Dividend InvestingDividend investing focuses on stocks that pay regular, growing dividends, aiming for steady income alongside capital appreciation.
- Cyclical StockA cyclical stock is one whose fortunes rise and fall with the broader economic cycle, booming in upturns and slumping in downturns.
- BetaBeta measures how much a stock tends to move relative to the overall market.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.