3 Stocks To Play Stock Market Defense

by: MyPlanIQ

We continue to investigate equities that can help bolster portfolios in these challenging conditions.

Matt Koppenheffer recommends three stocks with which you can play defense.

He selects three of the best companies with long term strength that should provide stability. His selections are:

  • Johnson & Johnson (NYSE:JNJ)
  • Procter and Gamble (NYSE:PG)
  • Consolidated Edison (NYSE:ED)

It is important to understand that these companies are not going to be rocket stocks. While you are likely to have downside risk limited, you also will have limited upside risk. We quickly forget prevailing market conditions and wonder why we made the choices we did.

It will be interesting to compare this with our ETF benchmark of a balanced portfolio of Dividend producing ETFs.

Asset Fund in this portfolio
REAL ESTATE ICF (iShares Cohen & Steers Realty Majors)
FIXED INCOME TIP (iShares Barclays TIPS Bond)
Emerging Market VWO (Vanguard Emerging Markets Stock ETF)
US EQUITY DVY (iShares Dow Jones Select Dividend Index)
US EQUITY VIG (Vanguard Dividend Appreciation ETF)
INTERNATIONAL EQUITY IDV (iShares Dow Jones Intl Select Div Idx)
High Yield Bond HYG (iShares iBoxx $ High Yield Corporate Bd)
INTERNATIONAL BONDS EMB (iShares JPMorgan USD Emerg Markets Bond)

Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Moderate 7% 65% 10% 81% 10% 68%
3 Stocks to Play Stock-Market Defense 15% 133% 5% 25% 6% 30%
Retirement Income ETFs Strategic Asset Allocation Moderate 5% 43% 6% 30% 4% 15%

This selection of equities performs reasonably well -- matching the dividend ETF portfolio fairly well. Given that there are only three equities in the portfolio, the volatility is very good. This is worth considering as the recent performance is very strong.

Three Month Chart

(Click to enlarge)

One Year Chart

(Click to enlarge)

Three Year Chart

(Click to enlarge)

Five Year Chart

(Click to enlarge)

The more detailed analysis and graphs give you a visual view of the volatility.

It is definitely worth considering strengthening your defense and these three are a good choice for that.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.