Geopolitical conflicts sweeping the globe, such as the recent Hamas attack on Israel and the persisting war in Ukraine, have created an atmosphere of global insecurity. Alongside depleting resources, supply chain constraints, and the pain of inflation, these factors have prompted investors to seek refuge in defensive stocks. Citibank affirms that defensive stocks are “still attractive” in times of uncertainty.
Defensive stocks appeal to investors seeking stability and protection against market downturns. With military expenditures on the rise and global military spending reaching an all-time high of $2,240 billion in 2022, defense stocks offer a safe haven for investors.
In this article, we will highlight five top defensive stocks that have performed well in the current market climate:
What are Defensive Stocks?
Defensive stocks are well-established companies with solid business models that operate in sectors with perennial demand. These stocks typically have strong balance sheets with minimal debt and often offer solid dividend payments.
One sector that stands out for its defensive characteristics is the aerospace and defense industry. With increasing military spending and geopolitical tensions, investing in aerospace and defense stocks can help protect portfolios against volatility.
5 Top Defensive Stocks to Invest in
Rising interest rates, war, and geopolitical tensions pose threats to economies, prompting investors to shift from consumer discretionary and interest rate-sensitive stocks to defensive stocks. These stocks offer better performance, security, and returns in turbulent times.
Here are five top defensive stocks to consider:
1. BAE Systems plc (OTCPK:BAESY)
Market Capitalization: $40.30B
Quant Rating: Strong Buy
Quant Sector Ranking: 28 out of 654
Quant Industry Ranking: 2 out of 59
BAE Systems is a United Kingdom-based provider of defense, aerospace, and security solutions. With a strong order backlog and significant revenue from the U.S., U.K., Middle East, and Europe, BAE Systems is considered a great all-around stock that provides investors with a good “hedge” against war. The company has secured numerous defense contracts and demonstrated strong financial performance.
2. Rolls-Royce Holdings plc (OTCPK:RYCEY)
Market Capitalization: $20.32B
Quant Rating: Strong Buy
Quant Sector Ranking: 7 out of 654
Quant Industry Ranking: 1 out of 59
Rolls-Royce Holdings is a versatile and innovative operator of industrial technology. The company operates in various segments, including Civil Aerospace, Defense, Power Systems, and New Markets. Rolls-Royce Holdings has a long legacy of producing excellent products and services, making it a reliable choice for investors. The company has reported strong financial performance and steady growth in its defense division.
3. Cadre Holdings, Inc. (NYSE:CDRE)
Market Capitalization: $1.06B
Quant Rating: Strong Buy
Quant Sector Ranking: 35 out of 654
Quant Industry Ranking: 3 out of 59
Cadre Holdings is a trusted global provider of innovative products for first responders, federal agencies, and organizations. The company focuses on strategic acquisitions to drive growth and diversify its portfolio. With consecutive earnings beats and a strong order backlog, Cadre Holdings is well-positioned for sustained growth in the future.
4. TransDigm Group Inc. (TDG)
Market Capitalization: $45.14B
Quant Rating: Strong Buy
Quant Sector Ranking: 53 out of 654
Quant Industry Ranking: 4 out of 59
TransDigm Group designs, manufactures, and supplies aircraft components globally. The company has a strong history of growth and profitability, driven by margin expansion, cost reduction, and strategic acquisitions. With a focus on improving operations and generating strong cash flows, TransDigm Group has consistently outperformed its peers.
5. AAR Corp. (AIR)
Market Capitalization: $2.14B
Quant Rating: Buy
Quant Sector Ranking: 89 out of 654
Quant Industry Ranking: 5 out of 59
AAR Corp. is an independent provider of aviation products and services. The company operates in two segments: Aviation Services and Expeditionary Services. With a focus on strong earnings and revenue growth, AAR Corp. has the potential to deliver solid returns for investors. The stock is trading at a discount compared to its sector peers.
While larger companies like Boeing, Lockheed Martin, RTX Corporation, and Northrop Grumman Corp. may be considered big names in the defense industry, their ratings are currently at Hold. These stocks may still be profitable investments, but their quant factor grades may not be as strong as the top five defensive stocks highlighted in this article.
Conclusion
In times of market volatility and geopolitical tensions, defensive stocks can safeguard investors’ portfolios. Aerospace and defense stocks offer stability and protection against economic downturns. The top five defensive stocks mentioned in this article, including BAE Systems, Rolls-Royce Holdings, Cadre Holdings, TransDigm Group, and AAR Corp., have demonstrated strong fundamentals, growth potential, and attractive valuations.
Investors seeking stability and long-term returns amid uncertain times should consider adding these top defensive stocks to their portfolios as a defensive play against market volatility.
