5 best defensive stocks to buy in October 2021

We have been in a bull market since the bottom of the US stock markets in March 2020. However, September’s fall, the worst since March 2020, has made investors cautious. As concerns emerge about the longevity of the current bull market, it would be interesting to add some of the defensive stocks to the portfolio.

Simply put, defensive stocks are low beta stocks and their earnings are less sensitive to business cycles. These are companies that produce goods and services for daily use whose demand is little impacted, whether we are in a recession or in a period of economic recovery. Here are the five best defensive stocks you can buy in October 2021.

  1. PepsiCo (NYSE: PEP)

PepsiCo stock only rose about 4% for the year and significantly underperformed markets. However, with its nearly 2.9% dividend yield and a strong portfolio of beverage and snack brands, PepsiCo is among the best defensive stocks to buy. Notably, the company also has good exposure to snacks, a strategy rival Coca-Cola is also trying to emulate.

Last year, PepsiCo fared better than Coca-Cola because it was able to offset declining revenue from outdoor cola sales with sales of snacks. The company is expected to release its fourth quarter tax results today, and consensus estimates call for a 7.2% increase in sales. However, its EPS is only expected to increase by around 4.4% during the period. Notably, PepsiCo battled cost inflation which is expected to impact margins. While PepsiCo said its forward purchases would help offset the impact, it might not be able to fully offset the price increase.

Morgan Stanley bullish on PEP stock ahead of results

Morgan Stanley is bullish on PEP stock ahead of earnings. “We expect a further PEP BPA in the third quarter and another quarter of strong organic sales growth confirming higher LT revenue growth following Pepsi’s reinvestment in marketing / cap-ex in recent years.” Morgan Stanley analyst Dara Mohsenian said. He’s also bullish on the company’s snack business and expects its sales to grow 4-5% organically.

What makes PepsiCo a good defensive stock to buy

“This steady sequential improvement and consistent results give us assurance that the recent acceleration in top line growth is sustainable,” said Mohsenian, commenting on the strong revenue growth reported by PepsiCo in recent years. quarters.

PepsiCo is among the best defensive stocks to buy and can generate decent returns throughout the business cycle. Today, its activity is quite diversified and divided between strong brands of drinks and snacks. The company is also working on the structural improvement of its margins.

Overall, PEP looks for some of the best defensive stocks to buy in October and protects your portfolio against any possible downside in broader markets. The stock is trading at an NTM multiple PE (over the next 12 months) of 23.4x, which seems reasonable.

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  1. AT&T (NYSE: T)

If you are an AT&T investor, you might not be very happy. The stock is down more than 7% this year, even as the larger markets are up double digits. Long-term performance doesn’t inspire confidence either, and the stock has lost nearly 30% in the past five years. However, after the crash and given the pivot to 5G, T is among the best defensive stocks to buy.

T is a good defensive action to buy

Wall Street analysts on T share

Wall Street analysts have mixed forecasts for the T-share and it has five buys, four holds and one sell rating. The average target price of $ 32.33 is an almost 19% premium over current prices. The highest street target price for the stock is $ 37. Although the stock has been underperforming the markets for some time now, it could be a good buy at these prices given the lukewarm valuations as it is trading at a PE NTM (next 12 months) of around 8 , 7x only. While there are concerns about the growth outlook and high debt level, the T share looks attractive at these prices.

AT&T is a defensive stock with a high dividend yield

Granted, defensive stocks are generally known to pay high dividends. However, the T share stands out with a dividend yield of 7.6%. Especially at a time when the S&P 500 dividend yield is near historic lows and CD rates aren’t even returning 1% a year, T might be one of the defensive stocks you should consider.

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  1. General Mills (NYSE: GIS)

General Mills stock is up about 4% for the year and is underperforming markets. The stock has generated no return over the past five years and is trading flat over the period. The high dividend yield, which is currently 3.3%, could have helped. However, if you are looking to buy some defensive stock in October, GIS looks like a good buy.

GIS is a good defensive value in October

Citi is bullish on General Mills stock

Earlier this month, Citi issued a bullish note on General Mills shares and raised the defensive consumer staples action to neutral on the buy side while raising the target price by $ 63. at $ 70.

“GIS had a much better fiscal first quarter than expected last week, and the market barely noticed. We think it’s a good story in a tough industry that deserves a second look, ”said Wendy Nicholson, Citi analyst. Notably, the stock’s valuation multiples have fallen amid the recent underperformance and it is trading at an NTM PE of 16.3x, which is a haircut from its ten-year average multiple.

GIS is an attractive defensive stock to buy

Nicholson finds the valuation attractive and said that “GIS is trading today at a discount of around 20% to the market, whereas over the past decade the stock has historically traded at a premium. of 9% compared to the market. “

Nicholson expects the stock to revalue and said, “Given GIS’s good start to its FY22 and our belief that some investors may soon start munching on high-quality consumer staples that offer relatively less risk to their outlook, we believe a more appropriate assessment for GIS today is that the stock is trading at a 10% discount to the market. “

However, not all are bullish on GIS stock and last month Goldman Sachs lowered the stock from buy to neutral. That said, if you’re looking for a defensive stock in the consumer staples industry, GIS seems like a good bet.

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  1. Berkshire Hathaway (NYSE: BRK.B)

Berkshire Hathaway is not strictly speaking defensive action. However, the fact that it’s led by legendary value investor Warren Buffett and has $ 145 billion in cash makes it a defensive proxy title. Buffett was pretty defensive about investing the money and was also a net seller of stocks in the second quarter. The Oracle of Omaha waits for the right valuations to invest the cash, which it unfortunately has not found for a long time.

What makes Berkshire Hathaway a defensive title?

Think of Berkshire Hathaway as a mutual fund that relies on a huge pool of cash amid larger stock valuations. These characteristics are similar to a defensive fund and this is what makes it a defensive stock worth buying in October. If you’re as concerned about the market valuation as Buffett, you might find some solace in BRK.B stock.

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  1. Kraft-Heinz (NYSE: KHC)

KHC is one of the companies owned by Berkshire Hathaway in its portfolio. The company has restructured its business and the outlook looks positive after the recent underperformance. The stock is paying a good 5.34% dividend yield, making it an attractive defensive stock.

KHC stock forecast

Wall Street analysts are mixed on KHC stock and it has five buy, 10 sell and two hold ratings. However, its average target price implies an increase of 12% over the next 12 months. Meanwhile, with a PE NTM of 15x, KHC looks like a good buy at these prices.

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Mohit Oberoi is a freelance financial writer based in India. He completed his MBA with a specialization in finance and also holds a CFA charter. He has over 14 years of experience in the financial markets. He has written extensively on global markets over the past seven years and has written over 7,500 articles. It covers metals, electric vehicles, asset managers, technology stocks and other macroeconomic news. He also enjoys writing on personal finance and valuation related topics.

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