The FTSE 100 isoff to a terrible start in2016 and has left investors around the world asking if were on the verge of a long bear market. The UKs top indexis currently well down on the year and sitting at 5,876 points after a small relief rally yesterday. Many cyclical stocks have been marked down significantly in the last week and it looks like theres further to fall.This means it could be the year of the defensive stock. These stocks operate in industries like tobacco and pharmaceuticals, sectors that dont tend to follow the usual macroeconomic cycle.Today Im looking at three popular defensive stocks in the FTSE 100 that may outperform this year.
The tobacco sector usually holds up very well during bear markets. Imperial Tobacco (LSE: IMT) isin a solid position and recently made a clever acquisition of US brands to boost market share. Today the stock yields a bumper 4%, which is covered by 1.25 times in cash. The stock has a reasonable PE ratio of around 15, which is cheaper than its main rivals, and its growth prospects are very good. In an industry of declining volumes, Imperial Tobacco continues to make great profits and that looks to continue for years to come.
As a gold miner Rangold Resources (LSE: RRS) has traditionally been a safe haven stock into which money would flood in bear markets. Although gold has lost some of its safe haven status in the last year or two, I think Randgold Resources will outperform the market this year. The company is completely debt-free and produces gold at some of the lowest costs in the world. The PE ratio is a lofty 28 but this shouldnt put investors off the stock, the exposure to the gold price is why the stock is attractive.
GlaxoSmithKline (LSE: GSK)is again a defensive stock that should hold up well in a bear market. The pharma giant has a dividend yield of 6% thatwillprovide a great income for dividend investors. The company trades with a PE of 16, which again is very reasonable, and earnings per share are forecast to rise by 15% in 2015 and 11% in 2016. This earnings per share growth should give the shares a reason to rise in the future and provide returns for investors.
The story so far
Ive highlighted three interesting stocks that all have good futures ahead of them andimportantly hold defensive qualities. If China continues to causeeconomic headaches around the world, then money will flood into them.
To illustrate this, since the start of the year the FTSE 100 is 6% down. However, all three of these stocks have significantly outperformed. Imperial Tobacco is down only 0.79%, Randgold Resources is up 3.2%, and GlaxoSmithKline is up 1.2%.
Investing in defensive stocks is a clever move that may lead to you outperforming a falling market through 2016.
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Jack Dingwall holds shares in Imperial Tobacco. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.