Plunge Protection: 3 Stocks to Hold When the Market Dives

Stocks to buy

The stock market is at record highs, but the next bear market could be right around the corner. Investors shouldn’t become complacent and should be looking for the best defensive stocks to buy.

According to Statista research department, there is an approximately 58 percent chance that the U.S. economy will fall into a recession over the next 12 months. This calculation is based on an economic forecast which uses various interest rates to model stress in the economy.

While economists may disagree over the exact odds of a recession, there’s definitely heightened uncertainty out there. Inflation and interest rates have soared to levels last seen decades ago. Geopolitical tensions have skyrocketed. And the upcoming presidential election adds further volatility to the mix.

With all these factors in mind, investors may wish to start looking to prepare for a future market decline. These are three defensive stocks that can hold their own even during a steep recession.

Walmart (WMT)

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Walmart (NYSE:WMT) is one of the world’s largest retail operations. Not only is it a dominant player in the North American grocery market, it also operates stores in about two dozen international markets and it has a growing e-commerce business as well.

Notably, Walmart was the only firm out of the 30 stocks that make up the Dow Jones Industrial Average whose stock went up during the 2008 Financial Crisis. Walmart’s focus on delivering everyday value made it an appealing choice for consumers that were facing layoffs and pressing economic uncertainty.

WMT stock is currently at fresh all-time highs following tremendous earnings reports in recent quarters. Interestingly, the company is already benefitting from higher-income consumers shifting to Walmart to save money. This flow should only increase when the economy weakens. Furthermore, Walmart is enjoying rising profit margins as labor and supply chain disruptions from the pandemic are now fading.

Procter & Gamble (PG)

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Procter & Gamble (NYSE:PG) is a dominant consumer wellness and cleaning products company. It has a portfolio of more than 20 different brands which produce at least $1 billion in annual revenues. Leading products include Tide laundry detergent, Charmin toilet paper, Pantene shampoo and Pampers diapers. 

Overall, P&G generates more than $80 billion in annual revenues. This dominant size and diversification across its brands ensures that P&G has exceptionally stable and resilient revenues and cash flows regardless of what’s going on in the broader economy.

PG had traded roughly flat over the past two years as investors shied away from defensive stocks that were sensitive to interest rates and supply chain disruptions.

However, P&G’s recent string of strong earnings reports and improving outlook have lifted shares to new all-time highs. This momentum should continue, especially as the overall economy starts to cool off and investors turn to safe haven defensive stocks for protection.

Nestle (NSRGY)

Source: Ken Wolter / Shutterstock

Nestle (OTCMKTS:NSRGY) is one of the world’s largest producers of packaged foods, infant formula, bottled water and various other product categories. While based in Switzerland, the company operates on a truly global scale, with its products found virtually everywhere on Earth. It generates about 93 billion Swiss Francs ($102 billion USD) in annual revenues.

NSRGY stock has underperformed in recent times, with shares being roughly flat over the past five years. Consumer staples companies have been out of favor amid supply chain disruptions and higher interest rates. These sorts of stodgy blue chip companies have been left behind amid the huge run in the large-cap tech sector.

Over the long-term, however, it’s a whole different story. NSRGY stock has risen more than 900 percent since 1995, in addition to paying a sizable dividend. Speaking of which, Nestle increases its dividend each and every year. This makes Nestle one of the defensive stocks to buy to last through bear markets and recessions.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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