Defensive stocks have a reputation for providing stable dividends and earnings regardless of the overall economy.
The usual examples of defensive companies include snoozers like utilities, healthcare providers, cigarette manufacturers, toilet paper producers and deodorant makers.
Basically, we are talking about the companies that make the things you’re gonna buy even if the economy’s going to heck and folks are losing their jobs.
Despite those middle-of-the night perseverations we all seem to be having these days, present US economic data is hardly supporting the doom-gloom scenarios.
So maybe it’s no wonder classic defensives are currently undervalued relative to other sectors.
And, despite the momentary upbeat economic news, for myriad reasons we've talked about, we’ve been holed up in the “recession is coming… eventually” camp for some some time now.
Therefore, perhaps could it be the time to stock up on stocks like Procter and Gamble (ticker PG), the maker of beloved essentials Charmin, Pampers, and Old Spice?
Sadly, the data on whether defensives are all that defensive is…iffy at best.
During the Great Recession, from October 2007 to March 2009, PG was down -33%. Yes, you might say a nice relative out-performance to the S&P 500 which was down -54% over the same period. Yet hardly - hardly - the secure return that spurs sound sleep. And most other so-called defensives didn't fare much better.
During the crisis before that crisis aka the Dot-Com Bubble Burst, classic defensives fared quite nicely – and not just on a relative basis.
From the beginning of 2000 until October 2002, PG added 18% while the S&P 500 lost -37% and the Nasdaq hemorrhaged -65%. Yes, you can sleep on that for sure, yet that time-frame feels a bit like ancient history.
So, what isn’t iffy in a downturn?
Boring yet beloved hiqh-quality bonds (ticker AGG). During the Great Recession, AGG was up nearly 9% and during the Dot-Com Bubble Burst they were up a sweet 13%.
Let's just say, when the stuff hits the fan, data says that's a good time to own bonds - not the companies that make your TP.
