The 3 Best Defensive Stocks to Buy in a Market Pullback

Investors worried about a market pullback should stash defensive stocks like Loblaw Companies Ltd. (TSX:L) right now.

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The S&P/TSX Composite Index was up 112 points in late-morning trading on March 10. Meanwhile, indexes in the United States were also well into the black. North American stocks have rebounded nicely in the second week of March after a choppy start to the month. Still, investors should be prepared for a market pullback. “Buy the rumour and sell the fact” is the quote that should stick after the U.S. stimulus package has passed. Today, I want to look at the three best defensive stocks to buy in this environment.

Why this retail giant is a top defensive stock

Alimentation Couche-Tard (TSX:ATD.B) is a Laval-based company that operates and licenses convenience stores around the world. I’d recommended that investors snatch up this defensive stock at a discount in late January. Shares of Alimentation have climbed 5.1% month over month at the time of this writing.

The company is set to release third-quarter fiscal 2021 results on March 17. In Q2 FY2021, the company delivered total merchandise and services revenue of $3.8 billion — up 6.3% from the prior year. Net earnings rose to $757 million, or $0.68 per share, compared to $578 million, or $0.51 per diluted share, in Q2 FY2020. Like other retailers, it is poised to benefit from a global reopening as vaccines rollout to combat the pandemic.

Alimentation stock still has a favourable price-to-earnings (P/E) ratio of 13. Moreover, it boosted its quarterly dividend to $0.087 per share. That represents a 0.8% yield. This defensive stock is worth picking up for those watching for a market pullback.

Grocery giants thrived during the 2020 market pullback

Loblaw (TSX:L) is the largest grocery retailer in Canada. I’d recommended that Canadians hold onto defensive stocks in the grocery space back in October. Shares of Loblaw have climbed 3.7% in 2021 as of early afternoon trading on March 10. The stock is down 2.7% year over year.

The company released its last batch of 2020 results on February 25. Revenue rose 7.1% from the prior year to $12.4 billion. Meanwhile, its e-commerce sales surged 160% as consumers moved to digital channels due to the COVID-19 pandemic. Adjusted EBITDA rose 5% year over year to $1.26 billion.

Grocery retailers proved to be reliable holds during the previous market pullback in 2020. Loblaw stock has a solid P/E ratio of 21. It offers a quarterly dividend of $0.335 per share, representing a 2% yield.

Here’s another defensive stock I’d add amid volatility

Saputo (TSX:SAP) is the last defensive stock I want to look at today. It is one of the largest dairy producers on the planet. Shares of Saputo have climbed 6% in 2021 so far. Those who are worried about a market pullback should look to hold this defensive stock as we approach the spring.

The company released its fourth-quarter and full-year 2020 results on February 4. Adjusted EBITDA rose 4.4% from the prior year to $431 million. Meanwhile, net earnings increased 6.1% to $209 million. Fortunately, sales volumes were largely unimpacted in the year-over-year period in the face of the pandemic.

Saputo stock last had a solid P/E ratio of 25. The stock offers a quarterly dividend of $0.175 per share, which represents a 1.8% yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC. The Motley Fool recommends SAPUTO INC.

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