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Defensive stock trading is an all-weather type of investment. It can keep your pockets stuffed through market turbulence, even when the wider market is struggling. People can’t cut back on consumer staples (think beverage and tobacco products, household goods, personal products and food and drug retailers).
Here are 5 consumer defensive stocks that deserve your attention.
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Overview: Consumer Defensive Stocks
The consumer sector produces products people need almost on a daily basis. Consumer defensive stocks are great investments in virtually any economic environment, including economic slowdowns.
Unlike cyclical stocks, which are highly dependent on the economic cycle, defensive stocks generate stable profits through all stages of the economic cycle. The simple idea behind investing in defensive stocks is to shield against significant decreases in share prices, which occur during either bear markets or market corrections.
Although consumer defensive sectors offer price stability through the economic cycle, the tradeoff is that they experience less growth during market upswings compared to higher-risk, cyclical sectors. The industry groups considered to be defensive include:
- Consumer staples
- Healthcare
- Commodities
- Utilities
Best Online Brokers for Consumer Defensive Stock
Online brokers don’t just let you execute and track stock trades. They provide extensive research material, tools to backtest strategies and charting capabilities for better market analysis. Here’s a list of the best brokers in the industry.
Best For
Intermediate Traders and Investors
N/A
1 Minute Review
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
Best For
- Active traders
- Intermediate traders
- Advanced traders
Pros
- Commission-free trading in over 5,000 different stocks and ETFs
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
- Intuitive trading platform with technical and fundamental analysis tools
Cons
- Does not support trading in mutual funds, bonds or OTC stocks
Best For
Futures Trading
N/A
1 Minute Review
TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.
Best For
- Advanced traders
- Options and futures traders
- Active stock traders
Pros
- Comprehensive trading platform and professional-grade tools
- Wide range of tradable securities
- Fully-operational mobile app
Cons
- Confusing pricing structure to leave new traders with a weak understanding of what they pay
- Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Best For
Options Trading
N/A
1 Minute Review
This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.
Best For
- Novice investors
- Retirement savers
- Day traders
Pros
- World-class trading platforms
- Detailed research reports and Education Center
- Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
- Thinkorswim can be overwhelming to inexperienced traders
- Derivatives trading more costly than some competitors
- Expensive margin rates
Best For
Advanced traders
N/A
1 Minute Review
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
Best For
- Cost-conscious traders
- Novice traders
- Active/Advanced traders
Pros
- Free Level 2 market data for all users who open an account
- Commission-free trading in over 5,000 different stocks and ETFs
- Over 8,000 different stocks that can be sold short
- $0 contract fee for trading options, no commission either
- Strong market data and analysis tools with over 50 technical indicators
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- Active trading community with more than 100,000 app users
Cons
- No phone or chat support
Features to Look for in Consumer Defensive Stocks
- Market share is a huge determinant of stock profitability. It’s the proportion of an industry’s total output, capacity or sales that a company is responsible for over a given period. Capturing a dominant share of the market is valuable for 2 main reasons — companies you invest in that capture the lion’s share of the market tend to offer the highest profits and keep up with competitive threats. A leading brand will easily secure a lot of shelf space with retailers. The aim is to increase its sales margin faster than the larger industry, therefore increasing market share over time.
- Same-store sales growth helps put revenue data in perspective. Also referred to as comparable store sales, it’s the measure of revenue and sales growth from existing store locations. This metric helps you assess the operating momentum of a business, whether it attracts huge customer traffic and stands out from the competition. Weak comparable store sales could be a sign of scaling business challenges.
- Profit margins may help you evaluate the earnings power of consumer staple companies. Top consumer staples companies post market-leading profit margins attributable to large sales bases, valuable brands and effective operating structures. Higher margins on this metric often indicate stronger earnings and a greater stock pricing power.
Defend Your Portfolio Against a Stock Market Shock
Having a few consumer defensive stocks can help you hedge against stock market shocks. Although these stocks aren’t the best performers in a bull market, they usually go up when the market slips. A portfolio containing defensives is more likely to offer a dividend. A regular income is always nice to have, especially during tough economic times.
Turn to Webull
0 Commissions and no deposit minimums. Everyone gets smart tools for smart investing. Webull supports full extended hours trading, which includes full pre-market (4:00 AM - 9:30 AM ET) and after hours (4:00 PM - 8:00 PM ET) sessions. Webull Financial LLC is registered with and regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). It is also a member of the SIPC, which protects (up to $500,000, which includes a $250,000 limit for cash) against the loss of cash and securities held by a customer at a financially-troubled SIPC-member brokerage firm.
