This FTSE stock has defensive traits! Should I buy shares?

Due to the current economic volatility, this Fool is looking for FTSE stocks with defensive capabilities to boost his holdings.

| More on:
Engineer Project Manager Talks With Scientist working on Computer

Image source: Getty Images

One FTSE stock I believe has defensive traits and that could provide stable returns in the long term is Treatt (LSE:TET). Let’s take a closer look to see if it could be a good stock to buy for my holdings.

Flavour of the month

As a quick introduction, Treatt is a chemical company that specialises in creating and selling natural extracts and ingredients for foodstuff, beverage, fragrance, and consumer goods markets. It has a global footprint with bases in the UK, US, and China.

So what’s happening with Treatt shares currently? Well, as I write, they’re trading for 754p. At this time last year, the stock was trading for 1,154p, which is a 35% drop over a 12-month period.

I believe Treatt shares have fallen due to the macroeconomic headwinds and the recent stock market correction (more on that later). It is worth noting that many stocks have suffered a similar fate recently.

FTSE stocks have risks

The biggest issue I have with Treatt shares currently is the headwinds mentioned above. Soaring inflation, the rising cost of raw materials, and the global supply chain crisis are having a material impact on many businesses. In Treatt’s case, these issues can affect the cost of its ingredients and squeeze profit margins. Less profit means less to return to shareholders.

Furthermore, the supply chain issues could affect Treatt’s ability to fulfil orders. This is something I will keep an eye on, as if it is unable to fulfil orders it could negatively affect sales and performance, which underpin returns.

The bull case and what I’m doing now

I believe Treatt has defensive traits as it provides vital components in the food manufacturing process. Food is an essential item, even in times of economic uncertainty and the current, well-documented cost-of-living crisis. After all, no matter the outlook, we all need to eat. Stocks linked to the production of food are therefore defensive, in my opinion.

So what about Treatt’s performance? I do understand that past performance is not a guarantee of the future. Looking back, I can see consistent growth of revenue and profit in the past four years. Due to the pandemic, 2020 levels dropped but have bounced back in 2021 to exceed pre-pandemic performance.

Positive performance underpins dividend payments that would boost my passive income stream. Treatt shares currently have a dividend yield of 1%. It is worth mentioning that dividends can be cancelled at the discretion of the business at any time, however.

Finally, I noticed that insiders own Treatt shares. I usually find this extremely positive. Those running the business are best placed to know if it will succeed. If they are willing to part with their own cash and believe they could secure returns, this helps me believe I could do the same.

Overall, I believe Treatt could be a good FTSE stock to add to my holdings. Although the shares have come under pressure recently, I expect them to bounce back. I believe current headwinds are shorter term issues, and I invest for the long term. I would add the shares to my holdings and keep hold of them for a long time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Treatt. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Are we about to see a raging bull market for shares?

Investor sentiment looks like it's changing and we could be in the early stages of a bull market for shares…

Read more »

Black father holding daughter in a field of cows
Investing Articles

I’m investing just £5 a day in income stock to aim for £8,000 a year in passive revenue!

Income stocks form the core part of my portfolio, offering me passive income with minimal effort. But I'm reinvesting my…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

3 dividend hero stocks for a monthly passive income

This Fool discusses the investment trusts capable of paying him a lifetime of growing passive income to supplement his portfolio…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

PayPal shares are rising again. Is now the time to buy?

After a massive fall, PayPal shares are starting to recover. Edward Sheldon looks at what's going on and discusses whether…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

Is now the perfect time to start buying AIM stocks?

Might it be worth taking on extra risk and buying AIM stocks for the recovery? One of our writers, though…

Read more »

Young female analyst working at her desk in the office
Investing Articles

1 top British growth stock I’d buy now

This growth stock has tripled since October 2020. Roland Head explains why he still wants to buy this quality business.

Read more »

Investing Articles

Should I buy Aviva shares for the dividend in 2022 and 2023?

Aviva shares have soared in value. Yet at current prices the insurer's dividend yields still smash the market average. Should…

Read more »

Close-up of British bank notes
Investing Articles

Forget income bonds! I’d buy these 2 high-yield UK dividend shares

These two UK dividend shares offer significantly more attractive passive income than boring bonds, in my opinion.

Read more »