Defensive stocks make an excellent contribution to the conservative portion of any investor’s portfolio. Strong consumer-goods companies represent the best defensive stocks, because their sales are predictable, come rain or shine for the economy.
At this juncture, it’s up in the air whether the economy is headed for a sustained rebound or stagnation. That makes it all the more important to hold defensive stocks. And two of the best are Procter & Gamble (PG), the world’s biggest consumer-products company, and Avon Products (AVP), the world’s largest door-to-door seller of cosmetics.
Procter & Gamble
The company reported that profit from continuing operations rose 5.8 percent to $3.33 billion in the quarter ended Dec. 31 from a year earlier. P&G has benefited from creating lower-priced brands to serve customers who are more worried about their spending amid uncertain employment prospects.
The company also is working on expanding its presence in emerging markets. Of P&G’s $78.9 billion in sales during the fiscal year ended last June 30, North America accounted for 40 percent, more than three times the share of emerging markets.
Warren Buffett obviously believes in the company. As of Dec. 31, his Berkshire Hathaway owned $4.9 billion, or 2.7 percent, of Procter & Gamble’s stock. Eight of 10 stock analysts surveyed by Yahoo have a buy or equivalent rating on the shares.
The company’s net income gained 5 percent last year to $1.08 billion. Avon expects a “mid-single digit” increase in its revenue this year. It has restructured its product portfolio, targeting more expensive skin-care and mother-and-baby products as sectors for strong sales.
Avon bought jewelry company Silpada Designs last year for $650 million. Silpada offers more expensive jewelry than Avon sold before the acquisition. So the deal gives Avon an opportunity to juice its sales. While it has struggled a bit to boost its business in emerging markets, Avon has an excellent track record of overcoming obstacles.
Standard & Poor’s analyst Esther Kwon estimates that Avon’s sales will grow 5 percent this year. “The operating margin for 2011 should benefit from better sales leverage and a swing to
positive foreign-currency transaction effects,” she writes.
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