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Top Defensive Stocks for the Next Market Downturn

  //stocks-investing.news-articles.net/content/202 .. fensive-stocks-for-the-next-market-downturn.html
  Published in Stocks and Investing on Sunday, November 23rd 2025 at 12:43 GMT by Seeking Alpha

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What Are the Best Defensive Stocks Right Now?
An in‑depth look at the safest bets for investors who want to weather the next market downturn.

1. Why Defensive Stocks Matter

When market volatility spikes or an economic slowdown looms, investors flock to “defensive” or “safe‑haven” stocks—companies that generate steady cash flows, have low sensitivity to consumer demand swings, and typically pay attractive dividends. SeekingAlpha’s article begins by framing defensive stocks as a core component of a risk‑controlled portfolio. The author argues that even in a bear market, a well‑constructed defensive core can preserve capital, generate income, and position the investor to jump‑on rebounds.

2. The Macro‑Context

The piece ties defensive selection to current macro‑data: rising U.S. inflation, a tightening Fed policy, and lingering supply‑chain bottlenecks. The article points out that, historically, defensive sectors have outperformed cyclical ones during inflationary or recessionary periods because they serve essential needs (food, utilities, healthcare). A link to a recent Fed statement on interest‑rate hikes is cited, underscoring the environment that favors defensive bets.

3. Defensive Sectors Highlighted

The author breaks down defensive stocks by industry, providing both reasoning and illustrative examples:

Each sector receives a brief narrative explaining why its constituent companies are robust in a downturn. The article links to a SeekingAlpha piece on “Dividend Aristocrats” for deeper insight into that group’s long‑term performance.

4. Company‑Level Deep Dives

For every sector the article lists a handful of top picks. Below are the highlights, along with the key metrics used to justify each pick:

a. Procter & Gamble (PG)

• Free‑cash‑flow yield: ~4.5%
• Debt‑to‑equity: 0.42, indicating conservative leverage
• Dividend growth: 10‑year CAGR of 7.2%
• Competitive moat: Premium brands, strong pricing power

b. NextEra Energy (NEE)

• Revenue growth: 5.6% YoY, largely from renewables
• Debt‑to‑EBITDA: 1.7x, manageable under higher rates
• Dividend yield: 2.9%
• Regulatory advantage: Long‑term power‑purchase agreements

c. Johnson & Johnson (JNJ)

• Healthcare‑innovation pipeline: 12% of revenue in R&D
• Debt‑to‑EBITDA: 1.2x
• Dividend: 2.6% yield, 48‑year growth streak
• Brand diversification: Consumer health, medical devices, pharmaceuticals

d. Verizon Communications (VZ)

• Subscriber base: 120M+ U.S. customers
• Capex requirement: 8.3% of revenue, steady infrastructure investment
• Dividend: 4.8% yield, 12‑year growth
• Competitive moat: Network coverage and spectrum ownership

e. Equity Residential (EQR)

• Occupancy rate: 97% across 17,000 units
• Rent growth: 3.5% YoY in core markets
• Debt‑to‑EBITDA: 2.3x
• Dividend yield: 2.5%

The article cites each company’s latest 10‑K filing or quarterly earnings call for these numbers. Links to the respective filings are included for transparency.

5. Metrics & Selection Criteria

Beyond sector classification, the author introduces a proprietary “Defensive Score” framework. The model weighs:

1. Dividend sustainability (dividend payout ratio, coverage ratio)
2. Financial health (debt levels, free cash flow)
3. Growth potential (EPS growth, revenue trends)
4. Moat strength (brand power, regulatory protection)

Stocks scoring in the top 25th percentile are highlighted. The article also explains how to adjust the score for varying risk tolerance, e.g., a higher weight on dividend yield for retirees.

6. Potential Risks and Counterarguments

The piece does not shy away from acknowledging that defensive stocks can still face headwinds. Key risk points include:

• Interest‑rate sensitivity: Utility and REIT yields may decline as rates rise.
• Commodity price swings: Energy and some consumer staples (e.g., food) can suffer from input cost volatility.
• Regulatory changes: Telecom and utilities could face stricter net‑neutrality or renewable mandates that alter cost structures.
• Innovation gap: Firms that lag in R&D may lose market share to more agile competitors.

Each risk is paired with mitigation tactics, such as diversifying across multiple defensive sub‑sectors or hedging rate exposure with fixed‑income instruments.

7. How to Build a Defensive Core

The article concludes with a practical blueprint:

1. Allocate 30–40% of the portfolio to defensive stocks (the exact figure depends on individual risk tolerance).
2. Diversify across sectors to avoid concentration risk.
3. Rebalance annually to capture any shift in defensive status (e.g., a high‑growth consumer tech that moves toward defensive territory).
4. Use ETFs as a supplemental tool: e.g., XLU (Utilities), XLV (Health Care), XLP (Consumer Staples).
5. Keep a cash buffer for opportunistic buying during market dips.

The author links to a SeekingAlpha discussion thread on “Defensive ETFs” for investors who prefer a managed route.

Bottom Line

SeekingAlpha’s article paints a compelling picture: a carefully curated defensive portfolio can act as a moat against downturns while still delivering income and modest upside. By anchoring the core around companies that demonstrate resilient cash flows, low leverage, and proven dividend records—while remaining mindful of macro‑rate sensitivity and regulatory risk—investors can reduce volatility and position themselves for a smoother ride through the next market cycle. Whether you prefer hands‑on stock picking or a “buy‑and‑hold” ETF approach, the article offers both the rationale and the concrete names that are currently deemed the safest bets in a challenging economic landscape.