5 Best Defensive Stocks to Buy in August 2021

With the US markets near record highs and valuations above their long-term averages, many investors are wondering whether they should allocate a portion of their portfolios to defensive stocks. Here are the five best defensive stocks that you can buy in August.

Defensive stocks are low beta and rise or fall less than the broader markets. The businesses for these companies are agnostic of the economic cycle. Consumer staple companies, utilities, telecom, and healthcare companies are examples of defensive stocks.

1. Entergy Corporation (NYSE: ETR)

Entergy is an integrated energy company and produces as well as distributes energy to 2.9 million customers across Arkansas, Louisiana, Mississippi, and Texas. The company has 30,000 megawatts electricity generation capacity which includes 7,000 megawatts of nuclear capacity and 2,700 megawatts of renewable energy capacity. However, the bulk of the company’s electricity generation is tilted towards fossil fuels and it has 28 power plants producing electricity through fossil fuels. The stock has looked strong in August and is now up over 11% for the year.

ETR looks like a good defensive stock in the utility industry

ETR stock looks like a good defensive stock in the utility industry. The stock is looking strong on the charts also and after finding support at the 200-day SMA (simple moving average), it has also crossed above the 50-day and 100-day SMA. The stock pays a healthy dividend yield of 3.5% which is over twice that of the S&P 500.

If you are looking at a defensive stock in the utility industry with a good dividend yield, ETR looks like a good bet.

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2. Coca-Cola (NYSE: KO)

Coca-Cola has been a part of Berkshire Hathaway’s portfolio for a long. The company has been trying to diversify its business from carbonated drinks and is also betting on the healthy drinks space. It is also focusing on the snacks market where it lags behind rival PepsiCo. Coca-Cola stock is up only about 8% in the year and is underperforming the S&P 500. The stock has a dividend yield of 3%.

KO looks a good defensive stock to buy

Wall Street analysts have a split rating on KO stock. The stock has 16 buy and 11 hold ratings from the analysts polled by CNN Business. Its median target price of $62.05 is a premium of 9% over current prices.

Earlier this year, Credit Suisse had raised the stock’s target price to $62 and reiterates its overweight rating. “Given vaccination rates, the recovery should be earlier and faster than planned. Our above consensus numbers are becoming realistic to the market. We moderately raise our target price to $62 (prior $60) based on a 27x multiple,” it said in its note.

KO looks like a good defensive stock to buy given the nature of its business. During the pandemic, the stay-at-home consumption of its products increased. Now as the economy has reopened, outdoor cola consumption is rising.

The stock is looking bullish on the charts also and trades above the 50-day, 100-day, and 200-day SMA. The stock trades at an NTM (next-12 months) PE multiple of 24.4x which are largely in line with its average multiples over the last year. If you are looking at a top defensive stock in Warren Buffett’s portfolio, KO would fit the bill.

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3. Cigna (NYSE: CI)

Cigna is a managed healthcare and insurance company. The stock is up only 2.5% in 2021 and is underperforming the markets by a wide margin. However, it looks like a good defensive stock to buy now after the recent underperformance.

Wall Street analysts look quite bullish on Cigna stock. Of the 24 analysts polled by CNN Business, 22 rate the stock as a buy while two rate it as a hold. None of the analysts have a sell or equivalent rating on the stock.

Its median target price of $274.50 implies an upside of 30.3% over current prices. Its lowest target price is $240 which is a premium of over 13.9% while the highest target price of $321 is a premium of 52.4% over current prices. In terms of percentage of buy ratings and upside potential based on target price, Cigna is among the top defensive stocks.

Cigna looks a good defensive stock in the healthcare space

Cigna looks like a good defensive stock in the healthcare space. The stock currently trades at an NTM PE multiple of 9.9x which is below its historical multiples. Looking at the technicals, CI has found strong support at the 200-day SMA but is facing resistance at the 50-day SMA. If the stock can break above the 50-day SMA also, it will strengthen the uptrend.

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4. Johnson & Johnson (NYSE: JNJ)

Johnson & Johnson stock has gained 11% so far in 2021 and is underperforming the S&P 500. The stock has a dividend yield of 2.4% which is higher than the S&P 500’s dividend yield. The stock is looking bullish on the charts and has crossed above the 50-day, 100-day, and 200-day SMA.

JNJ looks a good defensive stock

JNJ has a median target price of $188.50 which is an 8% premium over current prices. Its highest and lowest target prices are $202 and $160 respectively. JNJ stock trades at an NTM PE multiple of 17.6x which is slightly above the ten-year average of 16.1x. Meanwhile, the stock looks like a good defensive name to buy after the recent underperformance.

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5. AT&T (NYSE: T)

AT&T stock has underperformed the markets over the last five years. The only succor for investors is the high dividend yield that currently stands at 7.4%. Wall Street analysts look bearish on the stock though and only seven of the 29 analysts polled by CNN Business rate it as a buy. 16 analysts rate it as a hold while six analysts have a sell rating on T stock.

Dividend aristocrat

With a dividend yield that’s over five times that of the S&P 500, T stock is a dividend aristocrat. If you are looking at a high dividend paying stock T stock looks good. The stock has been a consistent underperformer but it should rebound amid the 5G supercycle. T stock has a median target price of $31.50 which is a premium of 12.6% over current prices.

Meanwhile, while the stock’s dividend is attractive, some analysts fear that it would have to cut the dividend. Last month, Argus has downgraded T stock from a buy to hold citing a possible dividend cut. “We are lowering our rating on AT&T in anticipation of a dividend cut as the company sheds assets acquired over the last few years,” it said in its release.

T looks bearish on the charts though and trades below the 50-day, 100-day, and 200-day SMA. The first major resistance for the stock would be the 50-day SMA. If it can cross above the trendline, we could see some technical bullishness in this defensive stock.

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