The Best Defensive Stocks to Buy (2024)

Defensive stocks are like umbrellas—you want to have them around in case economic skies darken. Companies in these sectors provide goods and services that consumers continue to purchase and use, regardless of whether times are good or bad—things like healthcare, utilities, personal care products, and tobacco.

Despite their reliable nature, defensive stocks have struggled. The Morningstar US Market Index has a lead on the Morningstar US Defensive Super Sector Index for the year to date, with returns of 14.67% versus 11.45%. However, for the month of July, defensive stocks outperformed the broad market by about 3 percentage points and therefore may have some momentum.

Are Defensive Stocks a Good Investment Today?

Notwithstanding recent results, defensive stocks currently hold appeal.

“As the rate of economic growth in the US is poised to slow in the second half of 2024 and into 2025, investors have looked to the stability of defensive stocks to position their portfolios to weather any potential downturn,” explains Morningstar’s chief US market strategist, David Sekera.

According to Morningstar’s chief US economist, Preston Caldwell, “There are a number of factors that drove up GDP growth in 2023, which are fading in impact, and the effects of elevated interest rates are far from fully playing out. So, we expect an annual average terms growth to trough at 1.4% in 2025.”

The 10 Best Defensive Stocks to Buy Now

To create our list of the best defensive stocks to buy now, we screened for stocks that land in Morningstar’s US Defensive Super Sector, which encompasses the consumer defensive, healthcare, and utilities sectors. These stocks all earn Morningstar Economic Moat Ratings of wide; they’re also all undervalued according to Morningstar’s metrics as of July 30, 2024.

1. The Estee Lauder Companies EL
2. Ambev ABEV
3. Zimmer Biomet Holdings ZBH
4. Reckitt Benckiser Group RBGLY
5. Anheuser-Busch InBev BUD
6. British American Tobacco BTI
7. Pfizer PFE
8. Roche Holding RHHBY
9. Kenvue KVUE
10. GSK GSK

Here’s a little more about each of the best defensive stocks to buy, including commentary from the Morningstar analysts who cover each company as of July 30, 2024.

The Estee Lauder Companies

• Morningstar Price/Fair Value: 0.48
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $36.1 Billion
• Forward Dividend Yield: 2.62%
• Sector: Household and Personal Products

Our list of the best defensive stocks to buy now opens with premium beauty brand Estee Lauder, which looks 52% undervalued compared with our $210.00 fair value estimate. We see an improved profit outlook for the company, driven by middle-class consumers upgrading from mass brands, and by more agile marketing and channel strategies.

As a leading provider of premium beauty products, Estee Lauder has reinforced its competitive position with category-leading brands in skincare, cosmetics, and fragrances, in addition to retaining a preferred vendor status across brick-and-mortar and digital channels. These attributes, coupled with scale-based cost advantages, should augur a long-term competitive edge that enables the firm to deliver excess returns for more than 20 years. As such, we award Estee a wide moat rating.

We see Estee as poised to benefit from premiumization trends, as beauty consumers in developed and emerging markets alike upgrade for perceived better-quality ingredients, efficacy, and services. Outside its North America home market, we view Estee as particularly well positioned in Asia (where skincare makes up 50% of premium beauty spending), thanks to highly regarded skincare brands (La Mer and Estee Lauder) and a newly opened innovation center and factory in the region that should enable it to deliver locally relevant products in a timely fashion. Further, we think its strategy to extend its brand reach is strong, given only half of Estee’s 20-plus brands are currently available in China, India, and Brazil. In addition, we expect Estee to dial up investments in digital channels and travel retail to complement its strong ties with brick-and-mortar retailers, in order to keep Estee’s brands top of mind for consumers and ensure its products are easily accessible as beauty users shop across channels.

Despite our sanguine view on Estee, we see risks on the horizon. The premium pure-play is more exposed to macro cyclicality versus peer L’Oréal (50% in mass), as consumers tend to trade down or delay their higher ticket discretionary spending amid recession concerns. In addition, Estee may need some time to refresh its lackluster cosmetics portfolio (except for M.A.C. and Tom Ford), leaving the firm vulnerable to market share loss to rivals L’Oréal, Shiseido, and LVMH. Furthermore, a slower-than-expected recovery in travel retail from pandemic disruptions has weighed on the firm’s results, but we think the bulk of the inventory destocking in this channel is in the rearview mirror now.

Ambev

• Morningstar Price/Fair Value: 0.59
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $32.8 Billion
• Forward Dividend Yield: 7.15%
• Sector: Beverages—Brewers

Defensive stock Ambev is 41% undervalued relative to our $3.60 fair value estimate. The largest brewer in Latin America and the Caribbean, Ambev also produces PepsiCo products for Brazil and owns Argentina’s largest brewer, Quinsa.

Brahma, the Brazilian brewer, was the first foray into the consumer product manufacturing industry by private equity group 3G. In 2000, 3G merged two Brazilian brewers; Brahma and Antarctica, creating Ambev. The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru.

In part because of the favorable industry structures, and in part because of its 3G heritage, Ambev is a highly profitable business. The company has a well-entrenched cultural focus on cost management and implemented zero-based budgeting over a decade ago. Ambev’s largest market is Brazil, which represented 54% of total beverage net revenue and 49% of EBIT in 2022. However, until coronavirus-related social distancing measures prompted the closure of on-trade in some markets, Ambev’s beer EBIT margin in Brazil had been in the mid-30% range, among the highest in the global beer industry, though it had faded from above 40% a decade ago. In 2022, that margin troughed at under 21% but recovered somewhat to just under 23% in 2023.

We believe rebuilding margins is important to the investment case. In our view, the most likely and significant boost to profitability would be a reversion to the historical mean of commodity costs. We estimate the company faced around BRL 3 billion in higher raw material costs in 2022, and a reversal of that by the end of 2024 would increase the gross margin by 3 percentage points, all else equal. In practice, we anticipate that some of the cost relief will be passed to the consumer, but lower costs will be beneficial to margins to a large degree.

Premiumization should be a long-term growth and margin driver. According to Euromonitor, the premium beer segment represented 16% of Brazil’s beer volume in 2022, around half of that of the US, and was responsible for most of the industry volume growth between 2016 and 2022. Ambev’s portfolio of local premium brands, as well as its access to Anheuser-Busch InBev’s global portfolio, positions it to benefit from a strong mix effect in the medium term.

Zimmer Biomet Holdings

• Morningstar Price/Fair Value: 0.63
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $22.7 Billion
• Forward Dividend Yield: 0.87%
• Sector: Medical Devices

Next on our list of the best defensive stocks to buy now is Zimmer Biomet Holdings. This medical-device company enjoys a wide and defensible moat based on its intellectual property, as well as the substantial switching costs for orthopedic surgeons. Zimmer stock is trading at a 37% discount to our fair value estimate of $175.00.

Zimmer Biomet is the undisputed king of large joint reconstruction, and we expect aging baby boomers and improving technology suitable for younger patients to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-17, including integration issues, supply and inventory challenges, and quality concerns. The firm’s efforts to turn around the firm have been admirable, though the pandemic slowed down progress. Now the firm is seeking to capitalize on the normalization of procedure volume and placements of its Rosa robot.

Zimmer’s strategy is two-pronged. First, it is focused on cultivating close relationships with orthopedic surgeons who make the brand choice. High switching costs and high-touch service keep the surgeons closely tied to their primary vendor. This close relationship and vendor loyalty also help explain why market share shifts in orthopedic implants are glacial, at best. As long as Zimmer can launch comparable technology within a few years of its rivals, it can remain in a strong competitive position. Nevertheless, we think surgeon influence will inevitably erode, as the practice of medicine changes in response to healthcare reform. Over the long term, it will be more difficult for surgeons to run private practices profitably, and more of them will be open to employment at hospitals.

Second, the firm aims to accelerate growth through innovative products and improved execution. The latter is critical, in our view, to realizing the firm’s potential. Despite a range of structural competitive advantages, Zimmer Biomet in 2016-18 failed to shine in operations, which dragged down returns. Former CEO Bryan Hanson delivered substantial signs of progress. Now, new CEO Ivan Tornos must continue progess on Rosa robot placements, related consumable product pull-through, and expansion of the firm's digital portfolio. Additionally, we anticipate the firm will flex its advantage in key areas, including extremities, trauma, and collaborations that involve sensor and digital technologies to improve surgical workflow.

Reckitt Benckiser

• Morningstar Price/Fair Value: 0.63
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $36.7 Billion
• Forward Dividend Yield: 4.72%
• Sector: Household and Personal Products

Our analyst sees possibilities going forward for Reckitt Benckiser as it streamlines its portfolio and navigates a series of baby formula lawsuits. This cheap household and consumer health products defensive stock trades at a 37% discount to our fair value estimate of $16.80.

The majority of Reckitt’s portfolio is well positioned in categories that benefit from secular growth drivers across consumer health and hygiene. The acquisition of Mead Johnson has added to its portfolio a leadership position in infant nutrition—a segment with substantial pricing power. However, the timing of the transaction, ahead of a period of declining birthrates and intensified competition in China, posed significant challenges and has dampened revenue growth in the last few years. Management sold the infant nutrition business in China in 2021, and the future of the remaining core infant nutrition business remains uncertain, especially given the ongoing premature infant formula litigation in North America. At the same time, we expect that further secular declines in birthrates in the US will continue to be a drag to the company’s mid-single-digit growth ambitions.

Reckitt's brands command premium prices in attractive categories across consumer health and home care. Compared with some of its closest competitors, Reckitt has a lower portfolio footprint in laundry care—and especially the somewhat commoditized laundry detergent segment—which partially explains the company's higher operating margin of low 20s compared with high teens on average for peers. The automatic dishwashing category, where Reckitt is the undisputed global market leader with the brand Finish, is especially attractive given the very low global penetration of dishwashers (estimated to be 13% in 2023) and their accelerated adoption given rising household incomes and increasing awareness of their convenience and resource efficiency benefits.

In the health segment, over-the-counter, or OTC, accounts for almost half of revenue and benefits from secular growth trends such as population aging and rising disposable income in emerging markets. Intimate wellness is another high growth category that benefits from increasing consumer awareness and social acceptance.

The many changes in leadership and the slew of bad news in recent years have left Reckitt in a somewhat vulnerable position, and the company could benefit from more decisive portfolio interventions and the resolution of legal concerns.

Anheuser-Busch InBev

• Morningstar Price/Fair Value: 0.67
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $117.8 Billion
• Forward Dividend Yield: 1.45%
• Sector: Beverages—Brewers

Anheuser-Busch InBev earns a wide moat rating based on its global scale and diverse brand portfolio. It has the leading market share in the US and strength in other countries through its stake in Ambev. This defensive stock trades 33% below our fair value estimate of $90.00.

Anheuser-Busch InBev, or AB InBev, has been acquisitive, having made transformative deals for Interbrew and Anheuser-Busch, and more recently acquiring Grupo Modelo, Oriental Brewery, and SABMiller. Management’s strategy is to buy brands with a promising growth platform, expand distribution, and ruthlessly squeeze costs from the business.

Previous acquisitions have created a monster with vast global scale as well as regional density. AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators. Vast global scale, along with its monopolylike positions in Latin America and Africa give AB InBev significant fixed cost leverage and procurement pricing power. This plays out in the firm’s excess returns on invested capital and best-in-class operating and cash cycles, asset turnover ratios, and working capital management. AB InBev delays payments to trade creditors more than 20% longer than its closest rival Heineken, and its free cash flow conversion has been consistently higher than peers in recent years.

Central to the investment case are the deleveraging of the balance sheet and rebuilding of margins in Latin America. On deleveraging, some progress has been made. Net debt/EBITDA peaked (excluding the coronavirus disruption) at 5 times in 2017, the year after the SABMiller acquisition, but despite road bumps in EBITDA growth since then, was reduced to 3.5 times at the end of 2023. Nevertheless, leverage of this magnitude still increases financial risk and earnings volatility, and we think expansion will be subdued until leverage is reduced to a more manageable level.

On the margin rebuild, we expect a reversion to mean in commodity costs, and the US dollar against other major currencies would go a long way to improving profitability. Mix and operating leverage should also drive margins. In Latin America and in Asia, combined almost two thirds of consolidated EBIT, the consumer is trading up to premium global brands, and ABI holds a strong portfolio with Budweiser, Corona, and Stella Artois, all strong brands in the premium segment.

See Also

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British American Tobacco

• Morningstar Price/Fair Value: 0.72
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $78.6 Billion
• Forward Dividend Yield: 8.37%
• Sector: Tobacco

Global tobacco company British American Tobacco earns a wide moat rating owing to its cost advantage, economies of scale, and intangible assets such as consumer brand loyalty. This undervalued defensive stock is trading at a 28% discount relative to our $49.00 fair value estimate.

British American Tobacco is the world’s second largest tobacco company by volume, with cigarette sales to over 180 countries. But with global cigarette consumption declining about 5% per year, BAT has invested in several next-generation products that can deliver nicotine with reduced risk. This strategy makes sense, but we think the firm has placed too many bets, leading to it becoming a “jack of all trades, master of none.”

For one, in heated tobacco, BAT’s Glo brand generates about GBP 1 billion in sales annually. We think heated tobacco has the greatest potential, given the close similarity to cigarettes, already reaching $32 billion in global sales, which is nearly triple the size five years ago, according to Euromonitor. However, with a midteens percentage market share, it severely lags Philip Morris International and its iQOS brand, which holds a dominant 70%-plus share of the market.

BAT also has a presence in modern oral, an $8 billion fast-growing category. Its Velo pouches hold about one quarter of the market but have been losing share recently and remain well behind PMI’s Zyn. Vaping is arguably its strongest category, as the Vuse brand that came with the Reynolds American acquisition in 2017 is the global leader and boasts rapid share growth (reaching 20% in 2023, from 4.5% in 2018). However, this $20 billion global market has been roughly stagnant, weighed down in particular by the US market shrinking by nearly half over the last few years. In all, we think the firm will miss its 2025 target of GBP 5 billion in next-generation product revenue, generating less than GBP 4 billion over the period.

Despite the challenges in its next-generation portfolio, cigarettes remain the most important driver for BAT, constituting 81% of its 2023 revenue. In this category, the company holds several brands with high market shares, particularly in the US, its largest market for cigarettes. There, BAT maintains the second through fifth leading brands by share, giving it about one third of the market in total behind Altria. The US market is attractive, and we expect BAT can continue to increase prices to offset volume declines and drive robust free cash flow generation.

Pfizer

• Morningstar Price/Fair Value: 0.73
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $174.0 Billion
• Forward Dividend Yield: 5.47%
• Sector: Drug Manufacturers—General

Drugmaker Pfizer, one of the world’s largest, is priced at a 27% discount to our fair value estimate of $42.00. The company continues its transition away from coronavirus vaccine revenue, helped by a pipeline that includes other vaccines, cancer treatments, and cardiovascular drugs.

Pfizer’s foundation remains solid, based on strong cash flows generated from a basket of diverse drugs. The company’s large size confers significant competitive advantages in developing new drugs. This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.

Pfizer’s size establishes one of the largest economies of scale in the pharmaceutical industry. In a business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial resources and the established research power to support the development of more new drugs. Also, after many years of struggling to bring out important new drugs, Pfizer is now launching several potential blockbusters in cancer and immunology.

Pfizer’s vast financial resources support a leading salesforce. Pfizer’s commitment to postapproval studies provides its salespeople with an armamentarium of data for their marketing campaigns. Further, leading salesforces in emerging countries position the company to benefit from the dramatically increasing wealth in nations such as Brazil, India, and China.

Pfizer’s 2020 move to divest its off-patent division Upjohn to create a new company (Viatris) in combination with Mylan should drive accelerating growth at the remaining innovative business. With limited patent losses and fewer older drugs, Pfizer is poised for steady growth (excluding the more volatile covid-19 product sales) before a round of major patent losses hit in 2028.

We believe Pfizer’s operations can withstand eventual generic competition; its diverse portfolio of drugs helps insulate the company from any one particular patent loss. Following the merger with Wyeth several years ago, Pfizer has a much stronger position in the vaccine industry with pneumococcal vaccine Prevnar. Vaccines tend to be more resistant to generic competition because of their manufacturing complexity and relatively lower prices.

Roche Holding

• Morningstar Price/Fair Value: 0.73
• Morningstar Uncertainty Rating: Low
• Market Capitalization: $259.9 Billion
• Forward Dividend Yield: 3.34%
• Sector: Drug Manufacturers—General

Next on our list of the best defensive stocks to buy is healthcare giant Roche Holding, another of the world’s biggest pharmaceutical companies. Roche maintains a wide and defensible moat thanks to its position as the leader in oncology therapeutics and its biologics focus. Roche shares are currently trading at a 27% discount to our fair value estimate of $55.00.

We think Roche’s drug portfolio and industry-leading diagnostics conspire to create maintainable competitive advantages. As the market leader in both biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global health care into a safer, more personalized, and more cost-effective endeavor. Strong information sharing continues between Genentech and Roche researchers, boosting research and development productivity and personalized medicine offerings that take advantage of Roche’s diagnostic expertise.

Roche's biologics focus and innovative pipeline are key to the firm's ability to maintain its wide moat and continue to achieve growth as current blockbusters face competition. Blockbuster cancer biologics Avastin, Rituxan, and Herceptin are seeing strong headwinds from biosimilars. However, Roche's biologics focus (more than 80% of pharmaceutical sales) provides some buffer against the traditional intense declines from small-molecule generic competition. In addition, with the launch of Perjeta in 2012, Kadcyla in 2013, and Phesgo (a subcutaneous coformulation of Herceptin and Perjeta) in 2020, Roche has somewhat refreshed its breast cancer franchise. Gazyva, approved in CLL and NHL and in testing in lupus, as well as new bispecific antibodies Columvi and Lunsumio will also extend the longevity of the Rituxan blood cancer franchise. Roche's immuno-oncology drug Tecentriq launched in 2016, and we see peak sales potential above $5 billion. Roche is also expanding outside of oncology with MS drug Ocrevus ($9 billion peak sales) and hemophilia drug Hemlibra ($6 billion peak sales).

Roche's diagnostics business is also strong. With a 20% share of the global in vitro diagnostics market, Roche holds the number-one rank in this industry over competitors Siemens, Abbott, and Ortho. Pricing pressure has been intense in the diabetes-care market, but new instruments and immunoassays have buoyed the core professional diagnostics segment.

Kenvue

• Morningstar Price/Fair Value: 0.74
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $35.9 Billion
• Forward Dividend Yield: 4.36%
• Sector: Household and Personal Products

Wide-moat Kenvue was Johnson & Johnson’s consumer segment before being spun off in 2023. It features five brands that generate over $1 billion in sales—Johnson’s, Neutrogena, Listerine, Tylenol, and Aveeno—as well as a number of brands that generate over $400 million in sales. This relatively cheap personal products stock is 26% undervalued; we think the stock is worth $25.50.

Kenvue is the world’s largest pure-play consumer health company by revenue, generating $15 billion in annual sales. Formerly known as Johnson & Johnson’s consumer segment, Kenvue spun off and went public in May 2023. We expect Kenvue, with the freedom to allocate capital and invest as a stand-alone entity, to mainly focus on growing its 15 priority brands (including Tylenol, Nicorette, Listerine, and Zyrtec) to drive future growth. We forecast the company to spend roughly 3% of sales in research and development, on par with some of its wide-moat competitors, to launch innovative products, specifically in digital consumer health. Recent examples include the Nicorette QuickMist SmartTrack spray and Zyrtec AllergyCast app.

Kenvue has been rationalizing its portfolio through a reduction in a number of stock-keeping units and business selloffs (15 divestitures from 2016-22). Now that most of this optimization is behind us, we expect a more agile portfolio. Macro factors such as an aging population, premiumization of consumer healthcare products, and growing emerging markets should provide tailwinds for Kenvue’s wide array of brands. We also expect Kenvue to benefit from an increasing digital investment—71% of the company’s marketing spending in 2022 was digital versus 44% in 2019—as this should fuel both e-commerce as well as in-person store sales.

We expect margin expansion from two channels: favorable pricing dynamics and improving supply chain efficiencies. Our analysis tells us that Kenvue has been able to stay ahead of its markets in terms of price hikes and we expect this trend to continue thanks to its products’ strong brand power. During an inflationary environment, we have seen Kenvue astutely pass over rising costs through robust price hikes with 7.7% of sales growth from price and mix during 2023. We also expect cost savings over the next five years from supply chain optimization initiatives as Kenvue dedicates roughly 60% of capital expenditures to automation and digitalization of its manufacturing and distribution network, improving end-to-end integration.

GSK

• Morningstar Price/Fair Value: 0.74
• Morningstar Uncertainty Rating: Medium
• Market Capitalization: $81.7 Billion
• Forward Dividend Yield: 3.72%
• Sector: Drug Manufacturers—General

GSK rounds out our list of the best defensive stocks to buy now. Patents, economies of scale, and a powerful distribution network support GSK’s wide moat. While it is the most expensive stock here, GSK still looks undervalued as it trades 26% below our fair value estimate of $54.00.

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company’s innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.

The magnitude of GSK's reach is evidenced by a product portfolio that spans several therapeutic classes. The diverse platform insulates the company from problems with any single product. Additionally, the company has developed next-generation drugs in respiratory and HIV areas that should help mitigate both branded and generic competition. We expect GSK to be a major competitor in respiratory, HIV, and vaccines over the next decade.

On the pipeline front, GSK has shifted from its historical strategy of targeting slight enhancements toward true innovation. Also, it is focusing more on oncology and immune system, with genetic data to help develop the next generation of drugs. The benefits of these strategies are showing up in GSK's early-stage drugs. We expect this focus will improve approval rates and pricing power. In contrast to respiratory drugs, treatments for cancer indications carry much stronger pricing power with payers.

From a geographic standpoint, GSK is strategically branching out from developed markets into emerging markets. Its vaccine segment positions the firm well in these price-sensitive markets. While this strategy is likely to create some challenges, like the potential legal violations that arose in early 2013 in China, we believe the fast-growing emerging markets will help support long-term growth and diversify cash flows beyond developed markets.

GSK’s decision to divest its consumer business will likely unlock value over the long run. GSK divested its consumer group (called Haleon) in July 2022. Given the strong valuations of consumer healthcare companies, we expect this unit will yield a stronger valuation than what is implied within the company’s structure before the divestment.

What Are the Morningstar Economic Moat Rating and the Morningstar Fair Value Estimate?

Morningstar thinks that companies with economic moats possess significant advantages that allow them to successfully fend off competitors for a decade or longer. Companies can carve out their economic moats in a variety of ways—by having high switching costs, through strong brand identities, or by possessing economies of scale, to name just a few. Companies that we think can maintain their competitive advantages for at least 10 years earn narrow Economic Moat Ratings; those we think can successfully compete for 20 years or longer earn wide Economic Moat Ratings.

The Morningstar fair value estimate represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in the fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.

How to Find More of the Best Defensive Stocks to Buy

Investors who would like to extend their search for top defensive stocks can do the following:

• Review the holdings included in the Morningstar US Defensive Super Sector Index to find more defensive stocks to investigate further.
• Use the Morningstar Investor screener to build a shortlist of defensive stocks to research and watch by screening on stocks in the healthcare, utilities, and consumer defensive sectors.