The relentless climb of US growth stocks has been a marvel – and a headache – for anyone who’s tried to keep up. The S&P 500‘s soared to record highs, fuelled by a handful of tech giants that now account for an outsized chunk of the index.
Yet, some analysts are warning that things are starting to look a bit frothy. With valuations stretched and interest rate uncertainty lingering, several market commentators now believe the stock market could tumble in the coming year.
Safe-haven industries
That’s why I’m turning to the reliable old FTSE 100. For many investors, British defensive shares look increasingly attractive in this uncertain climate. These aren’t defence contractors, but companies with defensive qualities – ones whose goods and services remain in demand even when times get tough.
Think consumer staples, utilities and healthcare firms.
Defensive businesses tend to benefit from what economists call ‘inelastic demand’. Households might skip a new smartphone, but they won’t stop brushing their teeth, turning on the lights or taking essential medicines. It’s a strategy that echoes billionaire investor Warren Buffett’s philosophy: own quality companies with strong moats and long-term potential.
Over the next few months, I plan to shift more of my portfolio toward well-established UK defensive names. Some I already hold include British American Tobacco, Unilever and Diageo. They offer steady income streams and robust business models, but I’m wary of changing consumer habits. Younger generations are drifting away from cigarettes and alcohol, which poses a risk for these industries.
That’s why healthcare may be a smarter option, and AstraZeneca (LSE: AZN) sits at the top of my stocks to consider.
A resilient performer
AstraZeneca’s strength lies in oncology and a rapidly expanding biopharma pipeline, with several late-stage trials close to commercialisation. The company’s proven track record through tough economic cycles shows just how resilient essential medicine demand can be.
Even when economies slow, people still need treatments for cancer, respiratory conditions and cardiovascular disease – and that underpinning of steady demand can make AstraZeneca a stabilising force in a portfolio.
Its share price currently trades at around 49% below fair value, based on discounted cash flow (DCF) models. Backing that assessment, analysts at Jefferies recently upgraded the stock from Hold to Buy, noting its appeal to both specialist and generalist investors. The firm expects earnings to grow an impressive 15.8% annually – hardly shabby for a business already among the most respected in the FTSE 100.
As always, it’s not without risk. AstraZeneca faces a classic ‘patent cliff’ threat, where some of its most lucrative drugs could lose exclusivity over the next few years. Meanwhile, any delays in clinical trials or regulatory setbacks could hit profits hard.
That’s the trade-off investors need to weigh up before jumping in.
Preparation’s key
Global markets feel a bit unsteady right now. US growth stocks look expensive, and while no one can say when a correction might come, gravity eventually tends to win.
I’d rather prepare than predict. That’s why I’m leaning toward high-quality defensive names on the FTSE 100. These shares might not offer the explosive gains of Silicon Valley, but they tend to balance growth with resilience.
In a world that’s anything but stable, that seems to me a trade worth making.
