Defensive Buy


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.

BREAKING DOWN '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.

  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 ...
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