With consistent selling pressure pushing the S&P 500 Index ($SPX) and Nasdaq Composite Index ($NASX) into correction territory, there is good reason for investors to be antsy right now. Concerns about a protracted market downturn are ravaging investor sentiment.
Although buying the dip has been the best strategy over at least the past decade, for many investors, buying anything in the current climate can feel too dangerous. Selling pressure is building, and even some of the most defensive stocks may see downside pressure.
What investors need to remember is that stock pickers who focus on value and stocks with inherently defensive business models tend to outperform.
Here are two such stocks that experts have identified as defensive plays that can thrive amid growing market uncertainty.
Defensive Stock #1: Cigna
Health insurers like Cigna (CI) tend to outperform during market downturns. That’s because the underlying business experiences fewer demand fluctuations. When times are tough, consumers will look to cut other expenses first, and medical care needs often necessitate that consumers keep paying up for health insurance plans.
Plus, the insurance industry is heavily concentrated. This gives Cigna and its peers significant pricing power and the ability to turn profits even in the worst economic climates.
From a fundamentals standpoint, there’s a lot to like about Cigna right now. The company has $7.6 billion in cash on its balance sheet, and has also produced more than $4 billion in free cash flow each quarter over the past year.
Thus, this stock can be viewed as a cash cow.
Analysts continue to believe that Cigna will continue to outperform. Out of 22 analysts covering the stock, 18 believe the stock is a buy, with four calling this stock a hold. And with a consensus price target that’s roughly 14% above current levels, investors can still enjoy a meaningful return if the market keeps moving lower.
Defensive Stock #2: Cboe Global Markets
Another top defensive stock many market experts are now touting as a way to benefit from this volatility is Cboe Global Markets (CBOE). The company is the market leader in options trading, providing exposure to roughly 30% of the options trading market. That’s beneficial for investors who believe Cboe Volatility Index ($VIX) will stay high and that volatility will rein supreme.
That’s because trading activity from the likes of retail investors and day traders should pick up, but it also means that institutional investors will increasingly put hedges on to protect their investments. Each of these contracts generates significant revenue for market leaders like Cboe.
Although Cboe has historically been a resilient stock, analysts are not as bullish on CBOE shares as they are on CI. In fact, the consensus price target on CBOE stock of $209.88 is below the current trading price near $219. The consensus rating also stands at “Hold.”
That could be a reflection of the company’s valuation, which is relatively rich at roughly 24 times forward earnings. However, if options activity does pick up as many expect, analysts could be forced to raise their price targets.
We’ll have to see how this all plays out for Cboe, but this company is among the more intriguing contrarian bets in the market right now. At the very least, I recommend that investors do their own research. I know I will be keeping it on my personal watchlist.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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