Many investors are rightly concerned about a recession around the corner. Indeed, the yield curve remains steeply inverted, inflation is high, and interest rates are on the rise. This has led many to consider investing in defensive stocks over more speculative names.
There’s a rotation that’s been playing out in 2023 away from defensive stocks toward more growth-oriented names. And while many of the most defensive companies in the S&P 500 have outpaced their tech counterparts, there is a divergence among investors. Many of them believe the next bull market is around the corner.
I don’t know what to expect. However, personally, I’m rotating into more defensive stocks for my own portfolio. Here are two stocks I own, and one I’m likely to buy soon, given their defensive nature and ability to produce strong cash flows in a down market.
| QSR | Restaurant Brands | $70.82 |
| CVX | Chevron | $167.09 |
| ENB | Enbridge | $39.60 |
Restaurant Brands (QSR)
Kicking off this list of defensive stocks to buy is Restaurant Brands (NYSE:QSR). This company, known for its assortment of fast food banners, has performed very well this year, with QSR stock appreciating more than 10% since Jan. 1. Much of this has to do with the company’s defensive positioning and the strength of its core brands.
In addition, the company’s ability to capture market share during declining business cycles is something I like. As diners trade down in times of economic turmoil, the Burger King parent should be able to pick up the pace and provide better results.
Of late, the company’s results haven’t been all that bad, considering the economic backdrop. Restaurant Brands’ earnings per diluted share climbed by over 21% to $3.25, and the corporation’s sales rose by 13.4% to $6.5 billion. All four of its segments showed strong performance, with three delivering double-digit percentage sales growth in the year. These strong earnings have allowed Restaurant Brands to remain a solid dividend option as well, with a yield of 3.1% at the time of writing.
Chevron (CVX)
Chevron (NYSE:CVX) is another defensive stock to consider. For those looking to hedge exposure to inflation or rising commodity prices, CVX stock is a great way to do so. In fact, this is a company that provides a strong growth outlook, a cheap valuation, and impressive dividend dynamics. Plus, Chevron’s reputation on the dividend front precedes itself, having raised its distribution for 36 consecutive years.
Also, with a yield of 3.6%, Chevron is certainly among the defensive stocks for long-term income investors like here. Notably, the company is among the top holdings of Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B), and is a top-notch way many investors look to play the energy sector.
In 2022, Chevron experienced a significant surge in revenue, generating approximately $246 billion, which is 50% higher than the previous year. Its profits also doubled year-over-year, reaching $35.5 billion. Analysts predict that Chevron will report earnings of $49.8 billion and earnings per share of $3.46 at the end of the month. Chevron has a track record of exceeding expectations so it may do so again.
As a result of the firm’s inexpensive assets, its operating cash flow (OCF) remains robust regardless of whether oil costs continue in the $80 to $90 per barrel oil. This will allow the business to continue buying back shares and paying dividends.
Investing in Chevron means having a bullish outlook on upstream oil and gas, as it’s the primary driver of the company’s earnings, despite its investment in lower-carbon technologies and downstream businesses.
Enbridge (ENB)
Lastly, Enbridge (NYSE:ENB) is a good option for traders seeking a strong dividend yield and is relatively recession-proof. With a dividend yield of 6.6%, In fact, Enbridge is among the lower-risk, high-yield opportunities I think are worth considering right now. The company’s diversified asset base is impressive. These assets include the second-longest natural gas pipeline in the U.S., North America’s longest crude oil pipeline, and a high-growth renewable power generation business.
In addition, Enbridge provides an opportunity to invest in cash-flow-generative assets at a cheap price. ENB also trades at a 18.1-times forward price-to-earnings ratio, which means ENB stock is a compelling option. Also, Enbridge’s strong cash flow, diversified business, and consistent dividend growth are impressive features. With stakes in several windmills, renewable energy activities, and an electricity transmission initiative, it’s quickly increasing its holdings of renewable sources. Even better, Enbridge recently increased its quarterly dividend to $0.8875 per share and has reaffirmed its revenue guidance for adjusted EBITDA of $15 billion to $15.6 billion for 2022.
On the date of publication, Chris MacDonald had a position in QSR, ENB. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.