If you are a beginner investor, then you must be aware of the different kinds of shares and investment types in the market. One of those necessary types is defensive companies. Defensive stocks are a great alternative during the falling times like recession. The shares are not much affected by market conditions.
Today, we’ll discuss some of the things about them. We are starting with when we should invest in them to ending with the three best defensive stocks for a trader in Europe.
What are Defensive Stocks?
A defensive stock pays steady dividends and generates solid earnings regardless of market conditions because there is always a market for their goods. These stocks tend to be more stable throughout the business cycle. Defense stocks include companies that manufacture weapons, ammunition, and fighter jets.
When to Invest in Defensive Stocks?
No Market Knowledge
The market is filled with novice investors and traders, and each one of them wants to earn fast. But the problem is not this; the issue is they don’t have the proper understanding of market situations.
In these cases, an investor should consider a defensive company for spending. It would be helpful in the following ways – The trader shall be able to get ample returns without much risk. And, the trader shall be able to understand the market at this time.
If the condition of the market is too unstable and seems risky, then you can choose defensive stocks here. These shares are less volatile and unlikely to get affected by economic situations.
Some people want to earn money real quick, while some are just okay with earning a less but stable income.
If you are a risk-averse taker, then also you can consider these kinds of stocks. The defensive stocks carry much lesser risk than cyclical shares. Thus, for risk avoiders, it can be the right choice.
If you want to invest money for income generation and not for wealth creation, then you should consider defensive stocks. Defensive companies are excellent sources of regular passive income because they distribute a significant portion of their profits to their stakeholders.
Role of Defensive Stocks in Holdings
The purpose of defensive shares in your stock holdings is in its name itself, i.e. to defend the overall portfolio.
At the time of recessions or when the volatility in the market is at its peak, defensive stocks help investors survive. These shares have the power to absorb market instability.
Remember, a trader should preferably go for large organizations and not for penny defensive stocks.
Three Best Defensive Stocks Europe
Procter & Gamble is a non-durable consumer goods manufacturing conglomerate. The multi-national organization produces daily usable goods like soap, detergent, shampoos, etc. It is one of the largest companies in the world and provides users with stable dividends to the stakeholders.
It can be the first choice for anyone looking for a robust defensive company. The reason is nobody would stop using daily usable goods like paper towels or razors. And, thus, the demand for these products shall not be much affected by any situation.
In 2019, the firm declared a massive dividend of 2.89 Billion dollars.
Novartis is a pharmaceutical company that develops medicines and treatments. The organization is one of the market leaders in the pharma industry and distributes the shareholders more dividend than the market average.
However, remember that it pays its dividend in Swiss currency, so one needs to convert it to theirs.
The reason behind their defending nature is that no matter what people are bound to consume their medicines and take the illness treatments. In fact, the pharma sector sees a significant rise in mishap catastrophic like conditions.
It is a tobacco-based giant which manufactures cigarettes, cigars, chewing tobacco items, and many more things. The truth is harsh, but the tobacco shares see no effect of downfall situations in an economy. Moreover, people can but don’t stop consuming these products because of their addictive habits.
The company is a big organization and has a market cap of around 87 Billion Dollars. The company produces many top tobacco commodities, including the cigarette brand Marlboro.
So, these were the top 3 European defensive stocks 2020 which one can consider. Note that all three stocks are from different industries, i.e. tobacco, medicinal, and consumer staples.
The Bottom Line
It is essential to understand that although defensive stocks(Trade Now) sound very good, they are not always the right choice. One must follow some essential points pertaining to them. The trader first should clear his basics and check for other parameters too. You can check the vital traits of spotting a defensive stock here.
At last, do not fall for traps that organizations make to make people fall like showing too good performance data. Instead, when adopting a defensive stock, take a defensive way also and invest in big organizations.