October 27, 2022
The world of investing has a lot of terminologies, and it would be impossible to ever memorize them all crystal clear. Some of these terms, inevitably, either overlap a little bit or use words that could easily be misinterpreted, which is an honest mistake.
Perhaps the most prominent example of this would be the common mix up between defensive stocks and defense stocks. If we’re being real, this is a totally understandable thing to be confused about, so rest assured that we forgive you, and this won’t affect your Front score.
Making the distinctions
So, we’ve already discussed defensive stocks specifically in another blog post here, but let’s do a quick recap.
Simply put, a stock that’s defensive in nature is one that tends to do better than others in an overall bearish environment.
Characteristics of defensive stocks
A defensive stock is a stock that is less likely to be impacted by market conditions and might be less volatile than growth stocks in a bearish market and provide a higher level of stability.
Some of the characteristics of defensive stocks are
- They have low P/E ratios
- They have low beta
- They pay a dividend
- They have high cash levels
- They’re well-established companies with a past, present, and future.
Keep in mind nothing is guaranteed. There were plenty of household names like Blockbuster that are not around anymore.
Okay cool, so what the heck are defense stocks then?
While defensive stocks tends to do better than others in an overall bearish environment, defense stocks is a characterization reserved for businesses that specialize in literal defense.
This could be companies like Lockheed Martin, Textron, Raytheon, and many others that work on researching, developing, and ultimately building defense systems and products, ranging from simplistic to intricate and complex.
Keep reading: Here are the top 10 defense stocks by market cap.
Some investors might seek good returns from businesses that thrive in economic downtrends, whereas others might prefer a stock that provides a high dividend yield and just holds steady during times of chaos.
Ultimately, the defensive strategy you choose should be one that suits you, and something that you can comfortably live with the results of, knowing you made a sound decision.
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