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.
Why?
"Defensive stocks" are companies that don't experience a noticeable downtick in revenues when the economy goes south.
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.
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.
Why?
"Defensive stocks" are companies that don't experience a noticeable downtick in revenues when the economy goes south.
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.
