Like I hinted in my outlook for 2025, this year indeed so far has proved to be rather volatile. Sentiment can change almost on a day-to-day basis, depending on political announcements. Even wild swings of 7–10% in just one day are not impossible. Under these circumstances, it makes sense to think about more defensive stocks, assuming the tariff circus continues and / or a recession hits soon. There are the usual suspects which can do the job. But I wouldn’t expect too much upside. My members have already received my next stock idea – one of the most defensive, recession- and tariff-unaffected businesses available – paired with decent upside.
Summary and key takeaways from today’s Weekly
– It might make sense to step a bit on the brakes and look for more defensive businesses.
– However, this does not offer an excuse to chase richly-valued, pretend-quality stocks.
– You should carefully question realistic downside risks and potential rewards.
The classic trade in times of uncertainty and / or high equity valuations has always been to switch from stocks to bonds. Predominantly government bonds, but high-quality corporates also check the box. It could still make sense, but only with short durations. The reason is, any inflation uptick would negatively affect, potentially even crash the long-end.
So, short-term bonds, yes. But…
Being a stock investor first and second not necessarily having high trust in government instruments, I wanted to go through the equity universe to look for suitable ideas to do this job.
It is a common misconception that all stocks go down when markets are under fire.
While on single days this can be the case, enduring bear markets see one or the other winner even. I don’t know whether we’ll have a bear market, but it makes sense to at least prepare a watchlist. Not giving any direct recommendations for a personal portfolio composition, but rather aiming to throw in some ideas to check for yourself, I am discussing some names that came to my mind.
A few days ago, all my members have already received my latest stock idea which fits into my requirements. The founder-led business is ultra-defensive and immune to a recession or any further tariff escalations. The stock got hit and reached now a very undemanding valuation. However, the company is set to even benefit from current developments while paying a nice 8.5% dividend while waiting.
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The sector rotation continues. While primarily tech and consumer cyclical stocks are facing tough times, in the second row where the spotlight does not shine there are sectors and companies that do well.
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both as per 16 April 2025 market close – since August 2022
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What has done well year-to-date, what could do well from here?
Answering the first question is quite simple.
Taking out the heat-map of the S&P 500 from Finviz and having a look at it, we can quickly determine the strong performers year-to-date so far.
Little surprising (at least for me), the big tech stocks are down. Not all tech stocks, but the big names, formerly known as must-own and safe-haven stocks.
But even in these fields, there are a few winners.
Among the green fields, we find names like:
- obviously Berkshire Hathaway (ISIN: US0846701086, Ticker: BRK.A)
- Visa (ISIN: US92826C8394, Ticker: V)
- Palantir (ISIN: US69608A1088, Ticker: PLTR)
- CME Group (ISIN: US12572Q1058, Ticker: CME)
- several healthcare, telecom and utility names
- waste management companies
- and of course consumer defensives (but there are more)
As I have written on two occasions about Buffett and Berkshire (see here and here), I won’t repeat that ad nauseam.
Visa and Palantir as finance and tech stocks are a bit surprising to me, but okay.
The issue I have is that the former has a high valuation, paired with downside risks if consumers spend less. The latter has not only a high valuation, but barely anyone even knows what the company is doing. News about cuts in the military budget let the stock crash temporarily (see here). It is thus clearly a politically-dependent stock for me.
CME Group provides futures, options and derivatives trading and clearing services. In times of market turmoil with exploding trading volume, this is paradise for the business. However, here too, I have valuation concerns. The EV to FCF ratio is in the high 20s. It can work out, don’t get me wrong. But the risk / reward is not that great.
The stock reminded me of my former pick, the Dutch company Flow Traders (ISIN: BMG3602E1084, Ticker: FLOW). It has done extremely well this year and especially the last weeks were strong.
In hindsight, it was a wrong decision by me to close this former case for my members – based on the performance. Those who held on, had a great natural hedge in their portfolios. But I laid down to my members that I do not trust the management and there have been a few points making me lose confidence in this case.
Until here, it has done well, though.
But unlike CME, this stock is much more volatile. And the company has been losing market share, while it still depends predominantly on the European markets. Those who believe in it, have a great hedging option.
The question is only, whether this is still the case after the recent run.
Healthcare, telecoms and utilities as sectors have always been the more defensive choices. All of them also contain some underperforming names, but in general these sectors have done well so far. The same applies to waste management and consumer defensive names, which offer everyday essentials like food, beverages or household appliances.
With this, now the question, what to do from here on?
Assuming we remain in a volatile environment with potentially more negative surprises, it first and foremost makes sense to step a bit on the brakes.
Aggressive growth names with respective valuations are likely among the first to suffer greatly. When high valuations and thus high expectations meet disappointing news or outlooks, the disaster is foreseeable. Business having robust profits and cash flows and not dreams or promises should be self-explanatory.
Keep in mind that only because a stock has fallen 20% or 30%, does not make it suddenly an undervalued gem. In many cases, a drawdown of even 50% does not qualify the stock to be considered.
That’s why I would also stay away from consumer discretionary / cyclical names.
Their stocks have fallen, some even very hard. I had written about one or the other name in the past to remain cautious, despite their stocks having dropped. With the tariff uncertainty, massive outlook revisions cannot be ruled out.
Names like Nike (ISIN: US6541061031, Ticker: NKE) are clearly not on my list.
Even despite or maybe actually because so many people are calling to buy the dip – only because the stock has fallen much. The PE ratio is still 26x for Nike… For a cyclical business that loses market share. Many have called out the bottom at 100 USD already. Until here, a bottomless pit with neither internal issues solved, nor external threats predictable.
That’s not playing defense. That’s reckless.
The first “safer” names that obviously come to one’s mind are defensive consumer names. Companies like the following should be on everyone’s mind:
- Procter & Gamble (ISIN: US7427181091, Ticker: PG)
- Walmart (ISIN: US9311421039, Ticker: WMT)
- Coca-Cola (ISIN: US1912161007, Ticker: KO)
- Altria (ISIN: US02209S1033, Ticker: MO)
But that is the problem. They are on everyone’s radar. There will barely be any surprises to the upside. Sudden growth boosts are unlikely and takeovers are also close to impossible. However, not-low valuations create unfavorable risk / reward setups where I do not feel comfortable enough to own them.
If you think I am fear-mongering, just think of Coca-Cola post 1998 or see my examples further below. Downside risk is realistic. Even among defensive names.
One of the main arguments for such stocks is that they pay reliable dividends.
While this is true, when I am looking to create a more robust portfolio, consisting at least partly of dividend paying stocks to generate cash flow, 1–3% yielding stocks are hardly convincing. Altria is an outlier in this regard, as its dividend yields around 7%. Can be a solution, but I do not like the company. They have strong headwinds I have written about in the past (see here and here).
One needs to feel well with their picks. That’s a personal decision.
The thing is, if you catch the wrong names at the wrong time – even if their businesses are seen as very defensive – you risk to get exposure to defensive losers like was the case with General Mills (ISIN: US3703341046, Ticker: GIS) or Conagra Brands (ISIN: US2058871029, Ticker: CAG).
No or strongly negative performance over the last five years and miles away from their highs during this period. I know, there were dividends in between. But this is what I wrote above. Pretend strong brands with pricing power – not so much…
These are not tech stocks, but businesses selling everyday consumer goods.
They haven’t even come back on their feet during the recent market turbulence. So, no flight to quality, at least not into this kind of quality.
Bought at the top, General Mills’ dividend had only a yield of less than 2.4%.
At the wrong valuation and with a minuscule dividend only, you engage in low-upside-but-realistic-downside setups. Even among the most defensive businesses.
This does not make sense.
General Mills fell from almost 90 USD to under 60 USD. Conagra from 40 USD to temporarily 25 USD. While growing tech stocks at least have the dream to reach new highs some time in the future, non-growing, but mature consumer stocks will find it very hard to reach their highs.
That’s for example also the reason why I am very cautious about one of the current consumer darlings Philip Morris (ISIN: US7181721090, Ticker: PM). The stock has had a terrific run. But despite the strong growth profile, it looks more like a tech stock now.
A dividend of not even 3.5% is very tough to swallow.
The more so, knowing that the company has plenty of debt from its acquisition of Swedish Match (costly, but very good acquisition). 22x is the PE ratio. Including debt and looking at the EV to free cash flow, we are closer to 30x.
That is massive – despite the strong execution so far.
I bet you do not want to buy now at 150 USD when the stock is hot, risking to see it falling to 100 USD. I do not know whether it will fall there. But what I know is that it is not clever to buy at high valuations.
General Mills yields now 4% and Conagra even more than 5%. This reads much better than the previous dividend yields when the stocks were at their highs. But honestly, for me this is just fairly valued, not undervalued. I want to see a margin of safety. These stocks should be less risky than at their highs, obviously. But still not convincing.
The same applies to companies like Waste Management (ISIN: US94106L1098, Ticker: WM). In theory, a very defensive business. Collecting garbage is recession-proof.
But at a 30x PE and a juicy dividend of 1.4%?
There are plenty of examples where one should be cautious.
I have often written about thinking about companies that can develop an own life and / or that have an organic growth story.
If you have difficulties in finding such ideas by yourself, the easiest way is to join my growing member base!
Many of these names are known, some are still member-exclusive and I haven’t discussed them anywhere publicly. I have written reports about energy stocks that have seen their stock prices rise even massively, despite lower oil prices. Guess what happens at higher energy prices?
A few days ago, a new idea has emerged. I have already sent out to my members my latest research report with a stock pick that is ultra-defensive.
Its business is neither affected by a potential recession, nor by tariffs in any form. The stock has a dividend yielding 8.5% and the valuation is too cheap to be ignored.
The public perception is currently, that the company is a loser under the current administration.
However, rather the opposite is the case.
DOGE, the Department of Government Efficiency, could prove to be even a massive tailwind for the company.
I have laid out everything you need to know in my latest member-exclusive report.
If you’re seeking not-on-everyone’s-radar, defensive ideas, you should have a look at this one.
Conclusion
It might make sense to step a bit on the brakes and look for more defensive businesses.
However, this does not offer an excuse to chase richly-valued, pretend-quality stocks.
You should carefully question realistic downside risks and potential rewards.
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