Right now, many investors believe that artificial intelligence (AI) stocks are overheated. And that’s understandable as a lot of valuations in the space are elevated. Worried that we could be about to see these stocks crash and send major indexes down? Here are three defensive stocks to consider buying now.
British American Tobacco
If tech shares experience weakness in the months ahead, one sector that could potentially do well is tobacco. A classic ‘old-economy’ industry, it tends to have a strong inverse relationship with technology (tobacco stocks soared in 2022 when tech shares tanked).
A stock in this industry that could be worth checking out is British American Tobacco (LSE: BATS). It’s the owner of Dunhill, Kent, Lucky Strike, and many other brands.
At present, it trades on a forward-looking price-to-earnings (P/E) ratio of 12. So the valuation looks reasonable. Meanwhile, the dividend yield‘s attractive at just under 6%. Therefore, there’s potential for both income and gains.
Of course, the big risk with this type of stock is smoking regulation. Consumer health awareness and ESG/sustainability concerns are also worth thinking about.
Given the risks, it’s not a stock I’d bet the farm on. But a carefully-sized position could be worth considering as a portfolio hedge.
Unilever
A defensive stock I’d be more comfortable taking a larger position in is Unilever (LSE: ULVR). The consumer goods powerhouse owns Dove, Hellmann’s, Domestos, and tons of other well-known, trusted household brands.
Currently, it trades on a forward-looking P/E ratio of about 18, which isn’t high for a company with a portfolio of world-class brands and very stable revenues. The dividend yield’s about 3.4%, so there’s potential for income here too.
One reason I like this consumer goods stock over others is that the company has a new CEO in Fernando Fernandez. He’s actually been with the company since 1988 and I hear that he’s a very astute operator.
I also like the fact that the company is focused on becoming leaner. Later this year, it plans to spin off its ice cream business.
It’s worth noting that changing consumer tastes are a risk. Just because Unilever’s brands have been popular for decades doesn’t mean they’ll be popular forever.
Overall though, I think the stock has appeal and is worth a look today.
Berkshire Hathaway
Finally, I believe Berkshire Hathaway (NYSE: BRK.B) could be a great stock to consider as a defensive play. This is billionaire investor Warren Buffett’s trading company.
This company’s invested in a ton of old-economy businesses including banks, insurers, supermarkets, oil businesses, and railroads. So I’d expect it to be a good hedge in the event of an AI crash.
At the same time, it has plenty of long-term growth potential. With names like Apple, Amazon, and BYD in the portfolio, it’s not all old-school investments.
One downside to this investment is that it doesn’t pay a dividend (Buffett likes to reinvest capital for growth). So investors are reliant on gains for returns and these aren’t guaranteed.
Another is that shares in the company cost around $500 each. This isn’t a major issue but it does make it harder to buy or sell a little bit here and there.
I think it has a lot to offer however. To my mind, its unique composition could help to lower overall portfolio risk.
