Definition of Defensive Stock
What is the definition of a "defensive stock"? What is an example of a defensive stock?
In the most recent dictionary entry, we defined the term "cyclical stock".
A cyclical stock is a stock that does better when the economy is expanding, and worse when the economy is contracting.
An example of a cyclical company would be a car manufacturer.
Now, "defensive stocks" hold up much better when the economy is slowing or in a full-blown recession.
"Defensive stocks" are companies that don't experience a noticeable downtick in revenues when the economy goes south.
Food companies. Tobacco companies. Health care companies.
Smokers are still going to buy cigarettes in a recession. People are still going to buy dinner at McDonald's in a depression.
These are "defensive" companies, meaning - if you want to protect your portfolio in a recession, you will turn to "defensive stocks" such as McDonald's or Philip Morris.
Cyclical companies, on the other hand, will perform (by definition) poorly during times of economic distress.
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