20 'Defensive Stocks' For a Crummy Market

Stock Tickers: KO, PEP, JNJ, MRK, PFE, PG, CAG, BUD, HRL, CPB, K, GIS, DUK, CL, MO, RAI, MCD, PYX, KFT, TAP

DJIA                12,216.24; Down 416.02 (3.29%)
NASDAQ           2,407.87; Down 96.65 (3.86%)
S&P500            1,399.04; Down 50.33 (3.47%)
10Yr-Bond        4.5130%; Down 0.1180
NYSE-Volume    4,164,578,000
NASD-Volume    3,045,369,000
VIX                       18.31 (+7.16)

This was the worst drop on the DJIA since the pre-Iraq trading and since after the market reopened after the September 11, 2001 tragedy; all 30 DJIA components closed down on the day.  The massive sell-off seen today was on record NYSE trading volume.  Was writing about the VIX showing a complacency on the ‘fear index’ part of the reasoning of a drop? Or was it the record margin borrowing on stocks?  We can blame China, we can blame a horrible Durable Goods number, we can blame ex-FOMC head Greenspan for hinting at the risks of a recession.  Blame whatever you want, but the selling built and built and when the NYSE trading curbs were lifted the market took a bungee jump. 

There have been reports that many of the stocks actually got stuck at low prices and there is also talk that the programs went unchecked and the electronic trading allowed the markets to suddenly tank.  There was a flurry of trades around 3:00 PM EST where all of a sudden the programs took the market from down more than 200 points to down more than 500 points.  You can probably bet there were many computing errors from the automated system on such large trading volume.  This was a record day on NYSE volume and the system froze on many stocks.  John Thain’s argument for eliminating the trading floor without people just got hosed, and rightfully so.  IN a FLOOR BROKER world alongside electronic trading they are obligated to maintain a somewhat orderly market.

Here are the basic go-to stocks that holders tend to flock to when the stock market sells off heavily.  You cannot automatically assume that just because investors go into "safety" stocks and "defensive stocks" that they do not fall at all.  When markets go into freefall, these usually tend to fall less but they often still fall.  Most of these stocks were lower today, but if you look they were not even close to the drop seen in the broader markets.  They do tend to fall less and here is a basic remedial list of defensive stock names, but keep in mind these are not in any particular order:

1) Coca-Cola (KO) $46.39 (-$1.33)
2) Pepsi (PEP) $62.70 (-$1.79)
3) J&J (JNJ) $63.05 (-$1.25)
4) Merck (MRK) $43.18 (-$1.30)
5) Pfizer (PFE) $25.14 (-$0.70)
6) P&G (PG) $61.25 (-$3.19)
7) ConAgra Food (CAG) $24.99 (-$0.37)
8) Anheuser Busch (BUD) $49.01 (-$0.80)
9) Hormel (HRL) $36.65 (-$0.90)
10) Campbell’s Soup (CPB) $40.44 (-$1.26)
11) Kellogg (K) $49.04 (-$1.01)
12) General Mills (GIS) $56.61 (-$1.17)
13) Duke Energy (DUK) $19.62 (-$0.39)
14) Colgate-Polmolive (CL) $67.34 (-$1.13)
15) Altria (MO) $82.67 (-$3.00)
16) Reynolds American (RAI) $60.62 (-$2.17)
17) McDonalds (MCD) $44.46 (-$1.34)
18) Clorox (CLX) $63.60 (-$1.58)
19) Kraft (KFT) $32.08 (-$1.19)
20) Molson Coors (TAP) $86.02 (-$0.59)

Now, before you go out buying everything defensive you have to make sure you are even concerned about a drop of this magnitude.  Did the global markets really change that much?  They may have and they may not have.  And you have to ask why General Electric (GE) was only down 1.9% at $34.66 on the day. 

Jon C. Ogg
February 27, 2007

Jon Ogg is a partner in 24/7 Wall St., LLC and he can be reached at [email protected]; he does not own securities in the companies he covers.