Defensive Stocks Refuse To Participate In Rally (PEP, KO, TAP, KFT, CAG, CPB, HRL, MCD, MO, PG, CL, MRK, JNJ)

Investors flock to defensive stocks in times of trouble and and when they worry, assuming they look to stay in the market when they are worried.  But if the trend here continues, this may be one of the worst times for defensive stocks compared to the overall market.  Our universe of 13 large-cap go-to defensive stocks looks awful in relative performance and it looks like only 1 stock of the 13 has actually outperformed the overall market.

Kraft Foods Inc. (NYSE: KFT), ConAgra Foods, Inc. (NYSE: CAG), and Hormel Foods Corp. (NYSE: HRL) have performed close to the overall markets, but that is almost it.  Forget about Campbell Soup Co. (NYSE: CPB) as that has been the worst of the lot.  Pepsico, Inc. (NYSE: PEP) and The Coca-Cola Company (NYSE: KO) are up double digits from recent lows, but are way behind the market index readings.  Even the high and mighty McDonald’s Corp. (NYSE: MCD) has greatly underperformed.

What about the great defensive stocks of Procter & Gamble Co. (NYSE: PG) and Colgate-Palmolive Co. (NYSE: CL).  These are both up over 10% from lows, but they have significantly underperformed in the rally.  Johnson & Johnson (NYSE: JNJ) is a mix between medical and consumer products, and its stock is up ‘only’ 17% from lows.  On the drug side, Merck & Co. (NYSE: MRK) is up almost 23% from its lows.

Molson Coors Brewing Company (NYSE: TAP) is now the sole North American-listed brewing company and beer is supposed to be defensive, and it is the best performer of the group.  Isn’t smoking and tobacco supposed to be the ultimate defensive play?  Altria Group Inc. (NYSE: MO) is up almost 19% from its lows.

As you sill see, many of these stocks even fell on Wednesday when the market was up handily.  Here is the overall group of 13 names:

PEP $49.72 (-$0.01), Up 13.57% from 52-week low of $43.78
KO  $42.94 (-$0.20), Up 14.69% from 52-week low of $37.44
TAP $42.02 (-$0.15), Up 36.61% from 52-week low of $30.76
KFT $25.00 (-$0.22), Up 20.13% from 52-week low of $20.81
CAG $17.69 (-$0.38), Up 30.84% from 52-week low of $13.52
CPB $26.39 (no chg), Up 7.15% from 52-week low of $24.62
HRL $31.34 (-$0.03), Up 26.32% from 52-week low of $24.81
MCD $53.69 (+$0.53), Up 17.25% from 52-week low of $45.79
MO  $17.06 (+$0.46), Up 18.97% from 52-week low of $14.34
PG  $50.84 (+$1.05), Up 15.73% from 52-week low of $43.93
CL  $61.35 (-$0.21), Up 12.86% from 52-week low of $54.36
MRK $24.61 (+$0.02), Up 22.74% from 52-week low of $20.05
JNJ $54.21 (-$0.15), Up 17.21% from 52-week low of $46.25

And guess how well the beloved DJIA and the S&P 500 Index have done?  We did not include the NASDAQ because none of the go-to defensive are NASDAQ-listed names.  Here is how the overall market has done by the two most popular index averages:

DJIA  8,512.28 (+101.63), Up 32.17% from 52-week low of 6,440.08
S&P500    919.53 (+15.73), Up 37.9% from 52-week low of 666.79

Before this sounds greedy, that is not the point.  We constantly look for new angles that have yet to move or that have been under-covered by reports out there.  The good news is that if the market does ever decide to roll back over in the near term it would seem that there is at least some solid downside protection in the defensive stocks compared to the overall market.

When you have seen 100% and 200% runs in big financial stocks and in many speculative stocks and gains of 40% in the NASDAQ 100 from lows, this notion of greatly underperforming is just the price of being defensive.

JON C. OGG