Defensive stock

A stock that tends to remain stable during difficult economic conditions. These stocks are usually those of companies that offer non-discretionary products such as food, tobacco, oil and utilities.

As the products they sell are relatively ‘necessary’, they are resistant during slumps and recessions because demand does not decrease as dramatically as for cyclical sectors. However, since demand for these products remains stable throughout the business cycle, these stocks also tend to lag behind the rest of the market during economic recoveries and booms.