30 Defensive Stocks That Hedge Funds Love

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 |  Includes: ANTM, BIIB, BMY, CVS, CVX, JNJ, LOW, MA, MON, MRK, MSFT, NEM, PFE, QCOM, SYMC, TMO, UNH, V, WBA, XOM, YHOO
by: Insider Monkey

The financial markets have been hit by one crisis after another during the past few years. To stimulate their economies, central banks all over the world have been applying expansionary monetary policies. For example, the Fed committed to ultra-low interest rates for another two years. Though the market was up 13.58% since the end of the third quarter, there are still some risks in the market. In order to avoid potential large losses, investors should play defensively and invest in defensive stocks.

But not every defensive stock is able to provide a margin of safety for investors. Investors should carefully research before investing. One of the most practical ways of investing in defensive stocks is to focus on what hedge funds are bullish about. Hedge funds usually have an edge over ordinary investors as they devote significant resources in researching stocks and the market. Below we compiled a list of top 30 defensive stocks that hedge funds love the most. All companies have at least $10 billion market cap, Total Debt / Equity ratio of below 0.5 and beta of lower than 1.0.The market data is sourced from Finviz.

The most popular defensive stock among hedge funds is Microsoft (NASDAQ:MSFT). At the end of September, there are 94 hedge funds in total with MSFT positions in their 13F portfolios, including Boykin Curry’s Eagle Capital Management, Jean-Marie Eveillard’s First Eagle Investment Management, Ken Fisher’s Fisher Asset Management, David Einhorn’s Greenlight Capital, and Seth Klarman’s Baupost Group. Since the end of the third quarter, MSFT returned 13.81%, versus 13.58% for SPY in the same period. It has a beta of 0.99 and a low total debt-to-equity ratio of 0.2. It also has a low P/E ratio of 10.22, indicating that the stock is relatively undervalued.

Pfizer (NYSE:PFE) is another defensive stock loved by a large number of hedge funds. According to our statistics, there are 74 hedge funds reported to own PFE at the end of the third quarter. Among them, Fisher Asset Management had the largest PFE position. It disclosed owning $389 million worth of PFE shares at the end of September. Ric Dillon, Lee Ainslie and Bill Miller are also in favor of PFE. Their funds all had more than $100 million invested in this stock. PFE has a total debt-to-equity ratio of 0.46 and a beta of 0.73. It returned 23.26% since the end of September, beating the market by nearly 10 percentage points.

Other mega-cap defensive stocks that hedge funds are bullish about include Johnson & Johnson (NYSE:JNJ), Exxon Mobil (NYSE:XOM), Merck & Co (NYSE:MRK), and Chevron (NYSE:CVX).

We think it is the right time to invest defensively. A portfolio of the 30 defensive stocks above can provide enough diversification for investors. We encourage investors to do some in-depth research on these defensive stocks and consider adding some positions to their portfolios.

Ticker

Company

Total Debt/Equity

Beta

MSFT

Microsoft Corporation

0.2

0.99

PFE

Pfizer Inc.

0.46

0.73

QCOM

QUALCOMM Incorporated

0.04

0.94

YHOO

Yahoo! Inc.

0.01

0.92

JNJ

Johnson & Johnson

0.3

0.55

NEM

Newmont Mining Corp.

0.31

0.32

MA

Mastercard Incorporated

0

0.93

XOM

Exxon Mobil Corporation

0.11

0.51

V

Visa, Inc.

0

0.75

WLP

WellPoint Inc.

0.42

0.97

UNH

Unitedhealth Group, Inc.

0.43

0.9

MRK

Merck & Co. Inc.

0.33

0.67

CVS

CVS Caremark Corporation

0.29

0.8

CVX

Chevron Corporation

0.08

0.8

LOW

Lowe's Companies Inc.

0.39

0.98

MON

Monsanto Co.

0.19

0.93

WAG

Walgreen Co.

0.16

0.97

BMY

Bristol-Myers Squibb Company

0.34

0.5

BIIB

Biogen Idec Inc.

0.17

0.85

TMO

Thermo Fisher Scientific, Inc.

0.47

0.77

SYMC

Symantec Corporation

0.44

0.86

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Disclosure: I am long MSFT.