Shares of utility, consumer-staples and healthcare companies weathers the storm better than most of the market in down market. They are considered defensive stocks. They are usually doing well or not too bad in slowing economy.
Investors also have sought out defensive stocks for the steady cash they are known to offer. Many companies in defensive sectors pay hefty dividends, giving investors a regular stream of income even when share prices are struggling. Companies in the S&P 500 utility and consumer-staples sectors offer a dividend yield of roughly 3% and 2.6%, respectively, among the highest payout percentages in the index.
The S&P 500 utility stocks as of Thursday are down 0.5% for the year, consumer staples are down 2.7% and healthcare stocks are down 3.2%. The S&P 500, meanwhile, is off by 19%.
However, defensive stocks may have been not cheap as everyone is looking for them in a slowing economy. The S&P 500 consumer-staples sector is trading at roughly 21 times projected earnings over the next 12 months, as of Tuesday’s close. The index’s utility and healthcare stocks’ multiples are around 19 and 18, respectively. That means defensive stocks could be considered a bit more overvalued than the S&P 500, which has a price-to-future-earnings ratio of about 17.