5 Best Defensive Stocks to Buy in November 2021

US stock markets recouped their September losses and bounced back sharply last month. Meanwhile, the US Federal Reserve looks set to announce the timeline for tapering at this week’s meeting. In a rising rate environment, defensive stocks could be a good bet.

While growth stocks have outperformed defensive stocks by a wide margin over the last decade, they nonetheless can add diversification to your portfolio. Defensive stocks are low beta names and their earnings are less sensitive to economic cycles. These are companies that produce daily use goods and services whose demand is not much impacted whether we are in a recession or an economic upcycle. Here are the five best defensive stocks that you can buy in November 2021.

1. PepsiCo (NYSE: PEP)

PepsiCo stock is up around 12% in 2021 and is underperforming the markets. The stock has gained 52% over the last five years. While the returns trail that of the S&P 500, they are ahead of rival Coca-Cola. Meanwhile, while its portfolio of global brands, spread across beverages and snacks, PepsiCo looks among the best defensive stocks to buy in November. The company has a dividend yield of 2.6% which looks attractive and is twice that of the S&P 500’s dividend yield.

PEP is a good defensive stock in the consumer staples industry

The company posted better than expected earnings in the fiscal third quarter. While it has been facing cost pressures in 2021 like other consumer staples companies, it is looking to offset that through more price hikes.

The demand for carbonated beverages is expected to come down over the long term which is a risk for PepsiCo. However, the company’s pivot towards healthier beverages and snacks would help offset the impact. The company is investing in the brand which will add long-term shareholder value.

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2. Pfizer (NYSE: PFE)

Global pharmaceutical giant Pfizer is another good defensive stock that you can consider buying in November 2021. The stock has risen over 21% so far in 2021 which is in line with that of the S&P 500. However, its dividend yield is almost 3.4% which looks quite healthy. Pfizer’s earnings have received a boost from the sales of its COVID-19 vaccine shot, which is the only vaccine with full approval from the US FDA.

Analysts are not too bullish on Pfizer stock

Meanwhile, Wall Street analysts don’t seem too bullish on Pfizer stock. Of the 20 analysts polled by CNN Business, only four rate PFE as a buy while 16 rate the stock as a hold or some equivalent. The stock’s median target price of $46 is a premium of only about 2% from these levels.

That said, given the expected need for booster shots, Pfizer still looks like a good stock to buy. The stock trades at an NTM (next-12 months) PE of 10.4x which is lower than its 10-year average. While analysts expect the company’s earnings growth to come down once the contribution from the COVID-19 vaccine fades away, it nonetheless looks among the best defensive stocks that should be on your watchlist in November 2021.

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3. Merck (NYSE: MRK)

Staying within the pharma space, Merck looks like another good defensive stock that you can buy in November 2021. The company’s COVID-19 pill has shown good results and is touted as a gamechanger in the fight against the deadly virus. The medicine which has been named molnupiravir has been shown to lower hospitalization and death rates by over half in moderate and severe coronavirus cases.

The key advantage of the medicine is that it can be taken orally. With a large number of people still showing vaccine hesitancy, the pill can help in the fight against the coronavirus. If the medicine is approved by the regulators, it could be a gamechanger in the fight against coronavirus. It could also help propel MRK stock higher.

While Merck’s cancer drug Keytruda would end the exclusivity period in about seven years, the company is trying to fill up the revenue cliff. It has announced the acquisition of Acceleron Pharma for $11.5 billion which would add to its portfolio of drugs.

MRK is a defensive stock with a good dividend yield

MRK has a dividend yield of about 3% which looks healthy. The stock trades at an NTM PE of about 12.7x which looks reasonable. If you are looking to buy a defensive stock in November to hedge your portfolio, MRK looks a good bet.

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4. American Water Works Company (NYSE: AWK)

American Water Works looks like another good defensive stock to buy in November 2021. AWK is a public utility company that provides drinking and wastewater services. The company would also benefit from the massive investments in infrastructure that the Biden administration has proposed.

AWK looks a good defensive stock

AWK looks like a good defensive stock to buy even as its valuations appear somewhat stretched. The stock has been facing strong resistance at the 50-day SMA (simple moving average). The stock would need to rise above the 50-day SMA to signal a technical uptrend.

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5. Ulta Beauty (NYSE: ULTA)

Ulta Beauty stock has gained over 31% in 2021 and is outperforming the markets. Despite the outperformance, the stock looks like a good buy. Today, William Blair added the stock to its focus list.

William Blair finds Ulta a good defensive stock to buy

“We are adding Ulta Beauty to the Consumer Near-Term Focus List, reflecting the company’s strong franchise quality, the likelihood of a substantial rebound in the cosmetics category over the next couple of years as consumers continue to emerge from the COVID pandemic, our view that near-term results are likely to continue to meet or exceed consensus estimates, and a reasonable to attractive valuation,” said William Blair in its note.

ULTA stock trades at an NTM PE of 23.9x which is below the five-year average of 26.3x. The stock looks among the best defensive stocks to buy and hold for the long term.

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