In this article, we discuss the 15 undervalued defensive stocks for 2024. To skip the detailed overview of the market and defensive stocks, go directly to the 5 Undervalued Defensive Stocks For 2024.
Defensive stocks are shares of companies that remain relatively stable during economic downturns as opposed to cyclical stocks. Defensive stocks usually outperform the market during recessionary times. Over the last 3 years, the global economy has performed in a way that baffled many investors and analysts. After the COVID-19 pandemic and in the aftermath of the Russia-Ukraine war, experts were pretty certain that the US economy would fall into a recession in 2023.
Exactly a year ago, Bloomberg reported that economists believed that there was a 70% chance that the US economy would go into a recession. So far in 2023, the S&P 500 has gained 24.33% at the time of the December 22 market close. The AI surge crushed the bear estimates for the year, and now many experts predict that the US economy will probably achieve a soft landing in 2024.
According to a Goldman Sachs report published in November, the US GDP will grow 2.1% on a full-year basis in 2024. The firm sees a historically average 15% probability of recession over the next 12 months. Goldman Sachs sees inflation cooling down in 2024 and dropping to around 2.4% by December 2024. The firm expects the Fed to deliver its first rate cut in the fourth quarter of the next year and then reduce it by 25 basis points per quarter until the second quarter of 2026. Comparatively, JPMorgan believes that inflation will go down to 2%, the unemployment rate will stay around 4%, and the firm does not forecast any recession.
While the expectations of economic growth are better than expected in 2024, a defensive stocks portfolio can still be helpful for investors who want to reduce volatility in their portfolio or maybe even have a passive stream of money through dividends. Moreover, defensive stocks are also perfect investments for beginners to help get a grip on the market.
Defensive stocks are mainly the shares of companies with low beta, stable dividends, and slow but steady growth. Stocks, mainly from utilities, consumer staples, healthcare, and real estate sectors, are considered defensive as they produce essentials for living and will never go out of favor. However, 2023 has not been the year for stocks in these sectors. Utilities Select Sector SPDR Fund (XLU) is down 11.18% at the December 22 market close, Consumer Staples Select Sector SPDR Fund (XLP) is down 4.11%, and Health Care Select Sector SPDR Fund (XLV) is 0.32% lower. Although SPDR Dow Jones REIT ETF (RWR) has positive gains of 8.65%, it is lagging way behind the broader market. There are a few stocks in these sectors that outperformed the market, like the healthcare companies Eli Lilly and Company (NYSE:LLY) and Novo Nordisk A/S (NYSE:NVO). The companies have gained 56.28% and 50% YTD at the time of the December 22 market close. Eli Lilly and Company (NYSE:LLY) was one of the top performers of the S&P 500 in the first three quarters.
While the defensive stocks have underperformed the market, let’s not forget that most of the market’s gains are credited to a few technology companies. Moreover, with lower valuations, these stocks also provide entry points for long-term investments. Some of the best undervalued defensive stocks for 2024 include Enel Chile S.A. (NYSE:ENIC), Companhia Energética de Minas Gerais - CEMIG (NYSE:CIG), and BioNTech SE (NASDAQ:BNTX).
15 Undervalued Defensive Stocks For 2024
A busy grocery store aisle stocked with the company's weight management products.
Our Methodology
For this article, we used the Yahoo Finance stock screener to make a list of companies from the utilities, healthcare, consumer staples, and real estate sectors. We narrowed down our list to companies with a price-to-earnings (PE) ratio below 15 and a 5-year monthly beta under 0.8. We skipped the stocks with negative analyst ratings.
The undervalued defensive stocks are listed in descending order of their PE ratio. Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Entergy Corporation (NYSE:ETR) is a Louisiana-based company that is involved in the generation, transmission, distribution, and selling of electricity using natural gas, nuclear, coal, hydro, solar, and oil sources.
On December 21, Entergy Corporation (NYSE:ETR) announced a quarterly dividend of $0.3359375 per share on its Series A Preferred Stock. It is payable by January 15 to the shareholders of record on January 3.
On December 20, Mizuho raised the price target on Entergy Corporation (NYSE:ETR)’s stock to $107 from $105 and maintained a Buy rating on the shares.
Entergy Corporation (NYSE:ETR) is one of the undervalued defensive stocks for 2024, along with Enel Chile S.A. (NYSE:ENIC), Companhia Energética de Minas Gerais - CEMIG (NYSE:CIG), and BioNTech SE (NASDAQ:BNTX).
Ambev S.A. (NYSE:ABEV), previously Companhia de Bebidas das Américas, is a brewing company, and its portfolio contains beer, malta, carbonated soft drinks, bottled water, isotonic beverages, energy drinks, and more. Ambev S.A. (NYSE:ABEV) is a subsidiary of Interbrew International B.V.
Of the 4 Wall Street analysts that covered Ambev S.A. (NYSE:ABEV) over the last three months, 3 kept a Buy rating on the stock. The average price target of $3.29 represented an upside of 17.08% as of the December 22 market close.
Ariel Investments mentioned Ambev S.A. (NYSE:ABEV) in its first-quarter 2023 investor letter. Here is what it said:
“Also during the quarter, we initiated a new position in Brazil-based brewing company, Ambev S.A. (NYSE:ABEV) in the quarter. The company produces, distributes and sells beer, carbonated soft drinks and other non-alcoholic and non-carbonated beverages across the Americas. Ambev appointed a new executive leadership team in 2020 focused on transforming the company’s culture and operations. Following several consecutive years of margin contraction, we expect 2023 to be a turning point and believe Ambev’s commercial strategy will help improve the sales mix resulting in market share, revenue and earnings growth. In addition, we like the net cash balance sheet and high free cashflow generation of the business.”
Bristol-Myers Squibb Company (NYSE:BMY) is one of the largest pharmaceutical companies in the world. It was founded in 1887 and is headquartered in Princeton, New Jersey. With a PE ratio of 13.27, Bristol-Myers Squibb Company (NYSE:BMY) is one of the best undervalued defensive stocks.
Bristol-Myers Squibb Company (NYSE:BMY) has raised its dividend for 15 consecutive years. On December 6, the company increased its quarterly dividend payout by 5.3% to $0.60 per share. The dividend is payable by February 1 to the shareholders of record on January 5. Bristol-Myers Squibb Company (NYSE:BMY) has a dividend yield of 4.59%.
In the third quarter, Two Sigma Advisors increased its stake in Bristol-Myers Squibb Company (NYSE:BMY) by 254% to 6.62 million shares worth nearly $384.230 million, making it the company’s most significant hedge fund investor.
VICI Properties Inc. (NYSE:VICI) is a New York-based REIT that owns and develops gaming, hospitality and entertainment properties. The company owns 54 gaming properties and 39 non-gaming experiential properties.
On December 13, KeyBanc lowered the price target on VICI Properties Inc. (NYSE:VICI)’s stock to $34 from $36 and kept an Overweight rating on the shares.
On December 7, VICI Properties Inc. (NYSE:VICI) announced a quarterly dividend of $0.415, which is payable by January 4 to the shareholders of record on December 21. As of the December 22 market close, the stock’s dividend yield was 5.30%.
Baron Funds mentioned VICI Properties Inc. (NYSE:VICI) in its third quarter 2023 investor letter. Here is what it said:
“We have slightly decreased our already modest exposure to the triple net gaming REIT VICI Properties Inc. (NYSE:VICI), an owner of quality gaming, hospitality, and entertainment properties. The company pays a 6% dividend that is well covered, has a strong track record of making accretive acquisitions, and has additional opportunities for growth in the years ahead.”
Sanofi (NASDAQ:SNY) is a French company that discovers, develops, manufactures, and markets a wide range of medicines and vaccines.
On December 15, Sanofi (NASDAQ:SNY) announced that the drug Fexinidazole Winthrop, which treats acute forms of sleeping sickness, got a positive scientific opinion from EU regulators.
On December 21, Sanofi (NASDAQ:SNY) announced an extension in its partnership with Exscientia plc (NASDAQ:EXAI) by introducing a discovery stage program into the ongoing collaboration.
On December 19, Sanofi (NASDAQ:SNY) reported that it exercised its option to license a natural killer cell engager program in solid tumors from Innate Pharma S.A. (NASDAQ:IPHA)’s Anket platform as per the terms of the collaboration.
United Therapeutics Corporation (NASDAQ:UTHR) is a Maryland-based company engaged in the development and commercialization of novel pharmaceutical products to treat cardiovascular disorders and infectious diseases.
On November 29, United Therapeutics Corporation (NASDAQ:UTHR) reported it furthered the licensing deal for Adcirca (tadalafil) with Eli Lilly and Company (NYSE:LLY) through December 31, 2026.
On December 13, United Therapeutics Corporation (NASDAQ:UTHR) announced that it completed the tender offer to acquire all outstanding shares of Miromatrix. The purchase price was $3.25 per share in cash at closing and an additional $1.75 per share in cash once Miromatrix’s Mirokidney achieves a clinical development milestone by December 31, 2025.
According to Insider Monkey’s database that tracks 910 elite hedge funds, hedge fund sentiment was positive toward United Therapeutics Corporation (NASDAQ:UTHR). In the third quarter, 48 hedge funds were bullish on the stock, compared to 45 funds in the previous quarter. The top investor in the company was Kurt Von Emster’s VenBio Select Advisor, with 2.85 million shares worth $644.294 million.
CVS Health Corporation (NYSE:CVS) is a Rhode Island-based company that offers healthcare and retail pharmacy services and products, including Medicaid healthcare management services, medications, and more. CVS is one of the best undervalued defensive stocks to buy for 2024.
On December 5, CVS Health Corporation (NYSE:CVS) increased its quarterly dividend by 9.9% to $0.665. The dividend is payable by February 1 to the shareholders of record on January 22. The stock’s dividend yield was 3.38% as of the December 22 market close.
On December 5, CVS Health Corporation (NYSE:CVS) initiated 2024 guidance with revenue and adjusted EPS expected to reach at least $366.0 billion and $8.50, respectively.
Patient Capital Management commented on CVS Health Corporation (NYSE:CVS) in its third quarter 2023 investor letter. Here is what it said:
“Our largest new position was CVS Health Corporation (NYSE:CVS). We owned CVS in 2021 through call options, which provided a handsome return. We sold it when it reached our assessment of intrinsic value. In the first half of the year, the stock traded down nearly 40% from its highs. CVS is valued like a pharmacy business in secular decline, while its strategy and assets are far better. CVS owns a healthcare benefits business (Aetna) and a pharmacy-benefits manager (Caremark). It recently acquired Signify Health and Oak Street Health, entering the In-Home Evaluations and primary care spaces enhancing the company’s ability to offer comprehensive healthcare services as we transition to a system more focused on value-based care. Short-term headwinds, such as an unwind from COVID, some unfavorable health care developments and negative headlines from PBM contract losses, weighed on the price. The company is again significantly undervalued, with a trough-level 8.2x P/E multiple well below peers’ 12.2x, with a 3.5% dividend yield. We saw an opportunity to diversify the portfolio with a stable company with a promising strategy and group of assets at an attractive price.”
Albertsons Companies, Inc. (NYSE:ACI) runs a chain of supermarkets and drug stores across the U.S. It markets its products under Lucerne Dairy Farms, Waterfront Bistro, Signature Reserve, and more.
In the third quarter, 53 hedge funds had investments in Albertsons Companies, Inc. (NYSE:ACI)’s stock. Stephen Feinberg’s Cerberus Capital Management was the biggest stakeholder in the company, with 151.818 million shares worth $3.45 billion.
4 Wall Street analysts covered Albertsons Companies, Inc. (NYSE:ACI) over the last three months. As of the December 22 market close, the average price target of $24.69 had an upside of 9.59%.
7. Public Service Enterprise Group Incorporated (NYSE:PEG)
PE ratio as of December 22 market close: 10.81
Number of Hedge Fund Holders: 20
Public Service Enterprise Group Incorporated (NYSE:PEG) is a public utility holding company that operates through its various subsidiaries like PSEG Nuclear, PSEG Fossil, PSEG Energy Resources & Trade, and PSEG Power Ventures.
On November 21, Public Service Enterprise Group Incorporated (NYSE:PEG) declared a quarterly dividend of $0.57, payable by December 29 to the shareholders of record on December 8. As of the December 22 market close, the stock’s dividend yield was 3.76%.
On December 19, Public Service Enterprise Group Incorporated (NYSE:PEG) initiated 2024 non-GAAP operating earnings guidance in the range of $3.60 - $3.70 per share.
On November 1, BofA lowered the price target on Public Service Enterprise Group Incorporated (NYSE:PEG)’s stock to $66 from $70 and maintained a Buy rating on the shares.
GSK plc (NYSE:GSK) is a UK-based company that develops, manufactures, and commercializes general medicines, specialty medicines and vaccines.
On December 20, GSK plc (NYSE:GSK) announced that it entered into a license agreement with Hansoh Pharma for HS-20093. The company will get exclusive worldwide rights, excluding China’s mainland, Hong Kong, Macau, and Taiwan, for the clinical development and commercialization of the B7-H3 targeted antibody-drug conjugate.
On December 11, GSK plc (NYSE:GSK) announced that its Jemperli (dostarlimab) got approval from the European Union as the first frontline immuno-oncology treatment with chemotherapy for endometrial cancer.
Enel Chile S.A. (NYSE:ENIC), Companhia Energética de Minas Gerais - CEMIG (NYSE:CIG), and BioNTech SE (NASDAQ:BNTX) are some of the most undervalued defensive stocks for 2024 besides GSK plc (NYSE:GSK).
GSK plc (NYSE:GSK) was mentioned in Ariel Investments’ third-quarter 2023 investor letter. Here is what it said:
“Global pharmaceutical and healthcare company, GSK plc (NYSE:GSK), also advanced in the period following a top- and bottom-line earnings beat and subsequent raise in full-year guidance. Shares were also aided by a successful U.S. and European launch of Arexvy, a respiratory syncytial virus (RSV) vaccine for older adults. Although risks around the Zantac litigation remain a concern, we believe GSK should generate sustainable growth and margin expansion as the company transitions its Pharma pipeline towards specialty medicines and vaccines. Furthermore, the company’s robust balance sheet provides the scope for bolt-ons, which has the potential to drive additional growth.”
