This month’s First Cut identifies stocks that could outperform the market in a downturn. There’s no universally accepted definition of a defensive stock, but investors tend to gravitate toward the health care, utilities, consumer staples and communications services sectors. Companies in those sectors often provide goods and services that will remain in demand even when the economy slows—unlike, say, automobile manufacturers and restaurant chains.

This screen identifies stocks from those four defensive sectors that have positive earnings over the past 12 months, a market capitalization of over $200 million, a long-term debt-to-equity ratio of less than 1.0 and a beta of less than 1.00. The $200 million market-cap threshold was chosen to exclude highly illiquid stocks. The beta threshold was chosen to include stocks with less volatility than average.

Note that stocks in the utilities sector did not appear in the screen results, partly due to their tendency to finance their expensive operations with debt. Low debt contributes to low fixed expenses and lower earnings volatility.

Stock Investor Pro Screening Criteria

Related

Investor Professor

Online Exclusive: Defensive Versus Cyclical Stocks

Stock Strategies

The Essence of the Benjamin Graham Approach

AAII Stock Ideas

Graham's Defensive Investor Screens: An Intrinsic Approach for Stormy Times