5 Best Defensive Stocks to Buy in January 2022

2021 was a good year for markets and with a gain of 27%, the S&P 500 had its third consecutive year of double-digit returns. Meanwhile, there was a sector rotation last year and defensive and cyclical stocks outperformed growth names.

Analysts were anyways quite circumspect about the market outlook for 2022 after explosive growth over the last three years where the S&P 500 with dividends has almost doubled. The minutes of Fed’s December meeting has added to the pessimism. Defensive stocks can be a good bet amid the tightening by the US central bank. Here are the five names you can consider in January 2022.

1. Coca-Cola (NYSE: KO)

If you are looking to buy a defensive stock in January 2022, Coca-Cola looks a good bet. Earlier this week, Guggenheim upgraded the stock from a neutral to buy. “Baring new more lethal COVID variants, we expect on-premise to be back to almost pre-COVID levels by summer ’22, which is about 6 months earlier than what we were assuming a year ago,” said Guggenheim analyst Laurent Grandet. The brokerage hiked its target price to $66 and said “We did not anticipate the magnitude of rebound in emerging markets that has been evident over the last few months, outpacing the growth of developed markets.”

Coca-Cola is a defensive stock in Berkshire Hathaway’s portfolio

Berkshire Hathaway also holds Coca-Cola stock in its portfolio which Warren Buffett has been holding for years. The stock also has a healthy dividend yield of 2.77% which is twice the S&P 500’s yield. Overall, KO is one defensive stock that should be part of conservative investors’ portfolio considering its strong brand, reasonable valuations, and the pivot towards defensive stocks.

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2. Berkshire Hathaway (NYSE: BRK.B)

Berkshire Hathaway stock outperformed the S&P 500 in 2021 after a gap of two years. The stock is outperforming the markets so far in 2022 also. The stock looks like a good defensive stock for 2022 considering the reasonable valuations and the nearly $150 billion on its balance sheet.

BRK.B is a defensive stock

While Berkshire Hathaway has exposure to several cyclical industries like energy and railroads, and Apple is its largest holding, it still looks like a defensive stock looking at the company’s conservative business model.

Buying BRK.B is like betting on Buffett’s expertise. The Oracle of Omaha hasn’t been able to find good acquisition opportunities as the market valuations are not what a value investor like him might like. However, given the expected increase in interest rates, value stocks might continue to outperform in the medium term which bodes well for BRK.B stock.

If you are looking for a defensive stock that can deliver better than market returns, Berkshire Hathaway is one stock that should be on your watchlist.

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3. Pfizer (NYSE: PFE)

Pfizer stock was among the best performing defensive stocks of 2021. The stock is among the best defensive names for 2022 also. As the omicron variant continues to play havoc, booster doses of COVID-19 vaccines are a hard reality. This is what makes Pfizer, whose COVID-19 vaccine is the only shot with a full FDA approval, an interesting bet. Wall Street analysts have also been taking a bullish view of the stock and have been raising their target prices.

Pfizer is a good defensive stock amid the COVID-19 pandemic

Earlier this week, BofA upgraded Pfizer stock from a neutral to buy, citing optimism over the recurring cash flows from the company’s COVID-19 vaccine shot. Pfizer also has a strong product pipeline which would add stockholder value. The company’s valuations also look reasonable. It also pays a dividend and the current yield of 2.9% looks quite good.

Looking at the surging cash flows from the sales of COVID-19 vaccines, Pfizer might continue to reward stockholders with dividends and buybacks. The company might also use the cash for acquisitions.

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4. General Mills (NYSE: GIS)

General Mills’ stock has looked strong over the last six months. While it still underperformed the markets in 2021 it managed to bridge the underperformance. The stock has a dividend yield of around 3% which looks good. General Mills has some of the well-known brands like Pillsbury as part of the portfolio. It has also been passing along the higher costs and has guided for more price hikes in the current year.

GIS is a defensive stock in the consumer staples industry

The consumer staples industry is quite defensive in nature and within the industry, General Mills looks like a good bet. Wall Street analysts meanwhile are not too bullish on the company and it has only five buy ratings. Three analysts have rated it as a sell while the remaining 13 analysts have rated it as a hold or some equivalent. The stock’s median target price of $65.05 is a discount of almost 6% from these levels.

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5. Invesco Defensive Equity ETF (DEF)

ETF investing has become very popular and total ETF assets are now over $7.2 trillion. December was a record month for US ETF and inflows were almost $100 billion which took the 2021 inflows to over $900 million which was much higher than the previous year. ETFs can be a good investing strategy especially for investors who lack the time or analytical skills to pick individual stocks. Their low expense ratio makes them an attractive investment option. If you are looking to invest in an ETF that gives you exposure to defensive stocks, Invesco Defensive Equity ETF looks like a good option.

DEF gives you exposure to defensive stocks

DEF has gained almost 23% over the last year. The ETF has a total annual expense ratio of 53 basis points. The ETF seeks to invest at least 80% of its assets in Invesco Defensive Equity Index. According to Invesco, “The Index uses a rules-based approach to select companies that potentially have superior risk-return profiles during periods of stock market weakness while still offering the potential for gains during periods of market strength.”

The investment approach looks apt if you expect stock markets to be weak in 2022. The ETF has a large-cap bias and with 102 holdings, it looks quite diversified. The healthcare sector accounts for 22% of the ETF while the industrial and consumer staples are the second and third largest sectors with a weightage of 16.9% and 12.5% respectively.

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