Defensive Stocks

Defensive stocks tend to keep their price levels when the economy falls. Generally, these stocks resist adverse shifts in the economy; tend to go up slower than other stocks during growth periods for the economy.

Defensive stocks are stocks from companies whose prices are expected to stay stable or that they have a good performance when the economy goes through a low period.

Defensive stocks are immune to changes in the economy and are not affected by the adversities during the cycles of negotiation. Examples of these type of stocks are drug companies, food and beverage companies, utility companies, consumer goods companies and even auto parts manufacturers.

In a recession, people generally wait to replace their cars are more feasible to spend money in repairing them. Equally, during inflation periods prices of gold stocks tend to raise.

Drug companies have predictable earnings placing them in a defensive category as well as in a growth stock category because of their pipelines of new drugs. If the economy goes into a deflationary environment, some stocks from supermarket chains which are seen as defensive type stocks could fall out of this category due to the fact that supermarket chains generally have low margins in earnings and prices to consumers cannot be increased.

Some investors are willing to buy defensive stocks under an economy fall and keep them until they improve.