Defensive stocks are less dependent on economic cycles. In some cases, defensive stocks even perform independently of any economic trend. Defensive stocks can be recognised by how they behave in times of falling stock markets. The graph is then clearly more stable than in the case of cyclical shares.
Nestlé S.A. is a good example of a defensive stock. The company continuously performs well over a long period of time.
Walmart and Diageo are also defensive stocks. The companies are constantly expanding, have world-famous brands and they adapt flexibly to changing consumer behaviour. There are also many defensive companies in the fabless and functional ingredients sector.
Companies don’t always have to behave defensively or cyclically as expected.
According to several experts, banks are generally cyclical. Only Wells Fargo has weathered the financial crisis exceptionally well.
In recent years, the graph has only shown a sideways movement instead of an upward one.
The company was involved in a scandal. In order to generate commissions, the employees had set up dummy accounts for bank customers, among other things. The resulting reputational damage to the company had to be cleaned up at great expense. However, the stability of the business model and the long-term profit outlook have not changed. Scandals, such as the one that hit Wells Fargo, lead to falls in share prices and can be buying opportunities.