Defensive stocks help reduce the risk in stock investment, especially during periods of strong market volatility and high inflation. The characteristic of this type of stock is that it has relatively stable profits, not too affected by market fluctuations. Choosing to invest in companies with stable industries also has the advantage of suitable stock investment strategy, helping investors feel more secure about profitability and reduce risks in an uncertain investment environment.
1. What is the concept of defensive stocks?
Share Defensive stocks are stocks that provide investors with stable dividends and income regardless of the performance of the stock market, even in times of uncertainty. Defensive stocks tend to be stable in the face of market fluctuations. When the economy is in recession, defensive stocks tend to outperform the market.
Defensive stocks are stocks of businesses that have products, services, and goods that consumers are unlikely to cut back on because of their necessity. No matter how good or bad the economic and social situation is, consumer demand is unlikely to decrease. Therefore, these stocks will still maintain good business results.
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In the world, defensive stocks belong to long-standing companies such as P&G (Procter & Gamble), Coca-Cola, Johnson & Johnson, ... thanks to strong cash flow into the business, high ability to overcome market challenges. Many investors favor these stocks due to long-term profit potential and lower risk compared to other types. In Vietnam, this group of stocks can be mentioned as PLX, REE, VMD, MIPEC, TRA ...
Characteristics of defensive stocks
- Provide essential products and services: Defensive stocks are often businesses that provide products and services necessary for daily life such as food, drinking water, electricity, water, and healthcare. These products have stable demand and are less affected by economic fluctuations.
- High market share: Companies that own defensive stocks often have high market share in their industry, helping them maintain business stability and create a competitive advantage.
- Strong financial foundation: Defensive stocks are usually companies with strong financial foundations, stable profits and strong cash flows. This helps them to maintain and develop their business in the long term.
- Works on Fear and Greed Index: Defensive stocks often reflect the fear and greed of the market, which is especially evident during difficult times. This is reflected in their low risk factor, making them a safe choice in volatile markets.
- Steady growth: Despite having a stronger growth advantage than other stocks during volatile market periods, defensive stocks often perform more stably than the market average because of their low risk factor.
For example, the stock code TRA has a Beta coefficient of -0.26. This index <0 means that the stock moves inversely to the market, usually increasing when the market decreases. If the market increases to 2%, TRA will decrease by -0.52%, conversely, if the market decreases to 2%, this stock code will increase by 0.52%.
To determine which stocks are defensive, individual investors can rely on the following 3 indicators:
- Dividends: Companies that issue defensive stocks usually pay dividends to investors regularly every year. If the company does not pay dividends in cash, it will pay dividends in stock. In case, if dividends are paid in both cash and stock, cash will take the majority.
- Beta Index: This is an index that shows the stability and low volatility of the stock. For defensive stocks, the required index is Beta < 1.
- P/E ratio: This is an index that reflects market price with earnings per share. Therefore, this index is used to determine stock price. For defensive stocks, the P/E ratio is usually lower than other stocks.
2. What opportunities are there for defensive stocks in 2024?
Globally, investing in defensive stocks has become an important strategy for many investors, especially successful ones like Warren Buffett. These investors understand that choosing defensive stocks can help protect their investment capital during difficult times and minimize risk.
Advantages and disadvantages of defensive stocks:
| Advantage | Disadvantages |
| - Stable: Demand for essential goods and services related to defensive stocks is always high in all economic stages. Moreover, regular dividend payments are also a plus point of businesses issuing stocks in this group. – Low risk: Adding these stocks to your portfolio acts as a hedge against sudden changes in the stock market, protecting your assets. – Performs better in market downturns: During recessions, defensive stocks tend to outperform other types of stocks, due to their stability and less exposure to market volatility. | – Low growth: The downside of stability is that defensive stocks rarely have rapid growth. Investors may not see significant growth in their investments in these types of stocks. – High valuation: Defensive stocks are often chosen by many investors during times of market volatility, which can lead to them being overvalued. This can create risks for investors, especially during recessions. – Poor performance during good economic growth: Defensive stocks often do not perform as well as other types of stocks, due to their stable and less volatile nature. |
The recent strong fluctuations in the stock market have made it more difficult for investors to choose stocks. According to experts, although the second quarter of 2022 has not ended, the picture of business activities has clearly differentiated between industry groups. Defensive stocks related to essential goods, hydropower, thermal power, gas distribution are recovering more strongly than other groups such as banking, real estate, securities, etc.
Investment experts also believe that investors will tend to choose this group of stocks because they have a stable growth foundation. At the same time, the group of defensive stocks has not increased too much in the past two years. Therefore, industries in the group of defensive stocks have the potential to grow in the next many years. When holding stocks of these companies, investors will see much less short-term fluctuations in the market.
The Vietnamese stock market has experienced many fluctuations in recent years. From the first trading session in 2022 to June 25, the VN-Index decreased, the HNX-Index and UPCOM-Index both decreased. Meanwhile, some stocks in the defensive industry group are "going against the current" to grow in the first 6 months of the year. It can be seen that these stocks are shifting from a defensive to an offensive state.
3. Comments on potential defensive stocks in 2024
Defensive stocks are often in industries with stable demand and are not much affected by economic fluctuations such as: consumer staples, healthcare, electricity, and financial stocks, including companies providing financial services such as banks and insurance, are also considered defensive.
3.1 Banking stocks
The banking industry is one of the country's pillars, with the ability to strongly influence other industries. Once banking policies change, other sectors will be affected. The capitalization ratio of banking stocks accounts for 25% of the stock market, acting as a defensive stock for the general market. Banking stocks are a fairly safe type of stock, because not every organization has the qualifications to establish a bank.
Banking stock situation in 2023: 2023 is shaping up to be a tough year for the broader market, and bank stocks are no exception. The banking sector’s Price to Book (P/B) ratio has fallen below its 10-year average, near negative (-1), and is trading at its lowest level since 2020 and 2022.
Outlook for bank stocks in 2024: However, the low valuation of bank stocks is considered an opportunity for investors, with hopes of a breakthrough in the future. In late 2023 and early 2024, the group of bank stocks experienced many strong increases, while receiving positive information about credit growth and bad debt control. Bank stocks are still expected to continue to grow in 2024, even though the economy has not fully recovered. Some factors such as low interest rates, support policies from the Government, and removing legal obstacles for the real estate industry are emphasized as the main drivers promoting the development of the banking industry.
Dưới đây là danh sách 5 cổ phiếu ngân hàng tiềm năng mà bạn có thể xem xét long term investment vào trong năm 2024:
- Vietcombank (VCB): Vietcombank is one of the largest and most prestigious banks in Vietnam, with a strong position in the field of commercial banking and financial services. Vietcombank's stability and growth in previous years have attracted the attention of many investors.
- Techcombank (TCB): Techcombank is one of the leading banks in technology and financial services in Vietnam. Innovation in products and services, along with a balanced credit structure, has made Techcombank an attractive choice for investors.
- BIDV (BID): BIDV is one of the largest and most reputable banks in Vietnam, with a nationwide network. With support from the Government and its position in the lending and credit sector, BIDV is considered one of the potential banking stocks.
- ACB (ACB): ACB is one of the leading private banks in Vietnam, famous for its quality personal and corporate services. Its extensive network and sustainable growth strategy have helped ACB attract the attention of many investors.
- MB (MBB): MB is known as one of the banks with a stable and effective growth strategy in Vietnam. With a solid position in the market and diverse services, MBB can be an attractive choice for investors who want to invest in the banking industry.
3.2 Consumer goods stocks
Consumer retail stocks are stocks of companies that are involved in the retail sale of consumer products directly to end consumers. These companies typically purchase goods from manufacturers or distributors and resell them to consumers through direct retail stores or online sales channels. The types of products that retail companies may sell include food, beverages, clothing, footwear, household goods, beauty products, electronics, and many other categories. Companies in this industry may operate on a national or international level and may specialize in one or more product areas.
Investing in consumer retail stocks often depends on consumer demand, economic conditions, and other factors that influence purchases. Consumer retail stocks are often considered defensive in the stock market.
Market context: The Vietnamese stock market has undergone significant volatility, and investors are turning their attention to the retail sector in this context. The first half of 2023 was described as a difficult period for the retail sector, with declining consumer spending and negative trends. However, these negative factors are easing, and the recovery outlook for the stock market is supported by profit growth and economic recovery.
Outlook for 2024: The forecast for the retail industry is that the market will move towards a recovery phase, especially in the consumer electronics retail sector. The stabilization of inflation and gradually lower interest rates may stimulate consumer demand, especially during the peak season at the end of the year. The retail industry is expected to gradually recover from the difficult period, and companies in the industry may have positive profit growth, especially from the fourth quarter onwards.
Here are the top potential consumer retail stocks that you can consider investing in in 2024:
- TNG – TNG Investment and Trading Joint Stock Company: TNG operates mainly in the commercial sector, with domestic and foreign goods trading activities. The company may be affected by factors such as fluctuations in commodity prices and consumer markets.
- PNJ – Phu Nhuan Jewelry Joint Stock Company: PNJ specializes in jewelry and precious metals. PNJ products may have stable demand in the consumer market.
- VNM – Vietnam Dairy Products Joint Stock Company: VNM is one of the leading dairy companies in Vietnam. The company may be affected by fluctuations in raw material prices and competition from rival companies.
- MSN – Masan Group Corporation: MSN is engaged in the manufacturing and trading of consumer products such as pharmaceuticals and cosmetics. The company may be affected by fluctuations in healthcare regulations and competition from rival companies.
- MWG – Mobile World Investment Corporation: MWG is one of the leading companies in the field of retailing mobile phones and technology products in Vietnam. The company may be affected by fluctuations in demand and trends in technology consumption. MSN experienced a period of sharp price decline from early August to mid-November 2023, but then showed signs of recovery. A report from JP Morgan shows that the difficulties of the consumer market in the first half of the year are an opportunity to invest in MSN, with attractive growth potential for many years to come. MSN has received attention from foreign investors, such as Bain Capital, showing confidence in the growth potential of the business. MSN's transition from a traditional consumer goods company to a corporation owning a retail consumer platform can bring great growth opportunities in the future.
- FRT – FPT Digital Retail Joint Stock Company (FPT Retail): During the volatile market period, FRT shares still maintained a steady increase of nearly 67%, showing the strength and stability of the business. FRT has continuously surpassed the peak since the beginning of October 2023, showing the strong growth and attractiveness of this stock in the retail sector. FRT's outstanding breakthrough compared to competitors in the same industry is also noteworthy. The opportunity to invest in FRT can be an attractive choice with solid growth potential in the future, especially in the context of the growth of the electronic retail market.
3.3 Electricity industry stocks
Electricity stocks are also considered defensive stocks with high stability. Companies in the infrastructure services industry always have a supply of goods that are consumed in all stages of the business cycle. The electricity industry is experiencing a period of strong development, especially after the liberalization of the industry. The remarkable growth of many enterprises in the industry has attracted the attention of investors. The introduction of many new power projects is also expected to increase electricity output, creating great development opportunities for the industry.
Potential of electricity stocks in 2024: A significant increase in electricity consumption due to economic reopening after the Covid-19 pandemic. This creates favorable conditions for electricity businesses to increase output and revenue. The prolonged La Nina phenomenon is expected to help hydropower plants store water, increasing electricity supply capacity. This will help improve the electricity supply situation in the coming time. The industrial production and construction sector accounts for 96% of total electricity consumption. It is forecasted that in the near future, electricity shortages may occur, creating great opportunities for electricity businesses to increase selling prices and revenue. The exploitation and production of electricity from renewable energy sources is also being promoted, helping to reduce dependence on traditional energy sources and enhance environmental protection.
- REE – Ho Chi Minh City Electricity Joint Stock Company: As one of the leading enterprises in the electricity industry, REE not only operates in the field of electricity production, transmission and distribution but also diversifies its activities in many other fields such as real estate, information technology, and renewable energy.
- POW – Vietnam Oil and Gas Power Joint Stock Corporation: As one of the largest companies in the electricity industry in Vietnam, POW focuses on electricity generation, transmission and distribution, especially for the oil and gas industry.
- NT2 – Nghe An Oil and Gas Power Joint Stock Company: NT2 is one of the pioneering enterprises in using renewable energy such as wind power and solar power, while continuing to expand the scale of electricity production from coal and gas sources.
- GEG – Gia Lai Electricity Joint Stock Company: Gia Lai Electricity Joint Stock Company (GEG) is one of the leading enterprises in the electricity industry in Vietnam. With its electricity production, transmission and distribution activities, GEG plays an important role in providing energy for the Central and Central Highlands regions. With its favorable geographical position and large production scale, GEG has been actively contributing to the economic and social development of the provinces in the region.
- GAS – Vietnam Gas Joint Stock Company: Vietnam Gas Joint Stock Company (GAS) is one of the leading enterprises in the natural gas sector in Vietnam. With an important role in exploiting, transporting and distributing natural gas, GAS ensures the supply of clean and efficient energy for production and daily life. With a large scale of operation and prestige in the market, GAS is one of the stock codes that investors are interested in and highly appreciated in the energy industry of Vietnam.
3.4 Healthcare stocks
After the COVID-19 pandemic, the medical equipment manufacturing and supply industry has become an unprecedented hot spot. During the crisis, we realized that this is an extremely important industry for society. Many companies in the medical equipment sector have gone public, creating excitement in stock trading and increasing their liquidity.
There is an increase in health consciousness among the public, especially among the high-income earners. They want to own common medical equipment such as oxygen inhalers, blood pressure monitors, and many others. Although life has started to stabilize, health has become a top priority for people.
Experts predict that the healthcare sector will see significant growth by 2024, due to increasing demand. Businesses are also investing heavily in the production, supply, and import and export of medical equipment. The government is also creating conditions for companies to expand production and markets to meet people's needs.
Here is a list of the most sought-after medical device stocks in 2024:
- Ben Tre Pharmaceutical Joint Stock Company (DBT): Manufacturing and trading medical equipment since 2004, DBT has grown significantly since its transformation into a joint stock company and listing on the stock market. It is a leading partner of Gedeon Richter, a leading Hungarian medical product distribution company.
- Vietnam Pharmaceutical Corporation (DVN): Established in 1971, DVN quickly became the leading pharmaceutical and medical equipment company in Vietnam. DVN has 10 subsidiaries, of which 7 are listed on the stock market, mainly focusing on pharmaceutical production and medical equipment import.
- Thai Nguyen International Joint Stock Company (TNH): Established in 2014, TNH has grown rapidly. With two major hospitals, Thai Nguyen International Hospital and Yen Binh General Hospital, TNH is focusing on providing medical equipment and is expected to have high growth potential.
- Vietnam Japan Medical Equipment Joint Stock Company (JVC): As a strategic partner of Hitachi and Fuji, JVC provides world-class medical equipment. With its medical equipment supply business and CT and MRI projects, JVC is actively trading its stocks and has high liquidity.
- Domesco Medical Import Joint Stock Company (DMC): As one of the first listed companies on the stock market, DMC focuses on manufacturing drugs and supplying imported medical products. With record growth in profits, DMC is showing impressive development over the years.
Source: Onstocks
