Defensive Buy

AAA

DEFINITION of 'Defensive Buy'

Securities or investments that are perceived as being lower risk by virtue of their lower exposure to economic cycles. While the term is generally used in connection with stocks that possess defensive characteristics, such as stable cash flows and lower volatility, it may also be used to refer to lower-risk securities such as government bonds and preferred shares. Defensive stocks may outperform their flashier counterparts like growth stocks during periods of economic uncertainty when equity markets display a declining trend, but will underperform during periods of economic expansion.

INVESTOPEDIA EXPLAINS 'Defensive Buy'

From an equity perspective, defensive buys are usually found in sectors that are immune to recessions and economic slowdowns. These sectors generally comprise suppliers of essential goods and services - such as pharmaceuticals, utilities and consumer staples - that consumers cannot forgo even during difficult economic times. Savvy investors with diversified portfolios will tend to overweight defensive stocks during slow or no growth periods, and underweight them during expansionary periods.

RELATED TERMS
  1. Cyclical Risk

    The risk of business cycles or other economic cycles adversely ...
  2. Underperform

    An analyst recommendation that means a stock is expected to do ...
  3. Defensive Investment Strategy

    A conservative method of portfolio allocation and management ...
  4. Buy Minus

    A type of order where a client instructs a broker to purchase ...
  5. Outperform

    An analyst recommendation meaning a stock is expected to do slightly ...
  6. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
RELATED FAQS
  1. Where do investors tend to put their money in a bear market?

    A bearish market is traditionally defined as a period of negative returns in the broader market to the magnitude of between ... Read Full Answer >>
  2. What are defensive stocks?

    The term defensive stocks is synonymous to non-cyclical stocks, or companies whose business performance and sales are not ... Read Full Answer >>
  3. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  4. Is there a way to include intangible assets in book-to-market ratio calculations?

    The book-to-market ratio is used in fundamental analysis to identify whether a company's securities are overvalued or undervalued. ... Read Full Answer >>
  5. What types of corporations would be expected to have higher growth rates than more ...

    Investors looking for corporations with higher-than-average growth rates have several factors to consider. Although younger ... Read Full Answer >>
  6. What tax implications are there for parties involved with a reverse repurchase agreement?

    A reverse repurchase agreement – sometimes referred to as a reverse repo – is the purchase of an asset with a simultaneous ... Read Full Answer >>
Related Articles
  1. Active Trading

    Guard Your Portfolio With Defensive Stocks

    Find out how these securities can protect you from a market bust.
  2. Fundamental Analysis

    4 Characteristics Of Recession-Proof Companies

    Investors can find profitable companies - even in a recession. It's all about knowing where to look.
  3. Mutual Funds & ETFs

    Your Mutual Fund: It's Riskier Than You Think

    Fund managers often take on more risk than they should, putting business ahead of fund holders' interests.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Economics

    Playing Investment Defense

    Learn how to protect yourself from the potential risks that can impact a company's share price - and your investments.
  6. Economics

    Riding The Bear Into A Bull Market

    How can you get back into the market to avoid missing market recovery gains? Find out here.
  7. Economics

    Greece Isn’t The Only Problem U.S. Stocks Face

    Both stocks and bonds fell last week, due to several factors dampening investor sentiment. The most obvious one is the evolving situation in Greece.
  8. Professionals

    When Couples Have Different Risk Appetites

    Communication, compromise and frequent monitoring will lead to successful investing for spouses with different risk tolerances.
  9. Entrepreneurship

    Fed Raising Rates Affects Startup Funding

    With interest rates having nowhere else to go but up, the Fed’s impending interest rate raise will likely begin to reverse the flow of startup funding.
  10. Entrepreneurship

    MLPs: Is Now the Right Time to Invest?

    Here's what you need to know about MLPs, those under-the-radar investment vehicles.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!