The 3 Best Defensive Stocks Come from This Unexpected Sector

No one expects the best defensive stocks to be soda companies, especially in the new era of healthy living.

But soda stocks actually tap into one of the most powerful global trends, and they'll keep rewarding investors for decades to come.

Our very own Money Morning Chief Investment Strategist Keith Fitz-Gerald has found six "Unstoppable Trends" that will always drive the market, rain or shine. He argues there are always profits to be found in energy; demographics; medicine; war, terrorism, and ugliness; scarcity/allocation; and technology because there are trillions of dollars behind these industries.

That's a great way to start thinking about what could be the best defensive stocks to help you survive the market's ups and downs. We are in the longest bull market in history, and the longer it goes, the more worried investors become.

And soda stocks tap right into the demographics trend because the global population will keep driving demand. People will always need beverages, even if the economy slows down. It's just a matter of what kind.

A 2015 study by Nielsen had 88% of respondents saying they would pay more for healthier foods.

Beverage trends present similar evidence. In 2017, The New York Times reported the number of adults drinking at least one sugary beverage on any given day had dropped from 61.5% in 2003 to just 50% in 2014. The Philadelphia Health Department also reported a 10% drop in soda consumption between 2015 and 2017.

It's clear tastes are trending toward healthier options, which would seem to be the death knell for companies making sugar-loaded sodas.

But they are actually the best play to tap into this new healthy trend, and it means their stocks offer not only sustainable income for your portfolio, but 40% upside too...

Why the Best Defensive Stock Is Also the Best Offense

It may come as a surprise, but soda companies are at the forefront of America's latest health craze. That's making some of the best defensive stocks to pad your portfolio.

Coca-Cola Co. (NYSE: KO) and PepsiCo Inc. (NASDAQ: PEP) are both ranked among the top 300 most powerful companies in the world by Forbes. The list considers revenue, profit, assets, and market value. These companies have delivered an enormous, agile variety of food and beverages for decades. On one end, you have your standard Coke and Fanta; on the higher end, you have Smartwater and Zico coconut water. Then there's an array of energy drinks, teas, and orange juices falling somewhere in the middle.

Both Coca-Cola and Pepsi have been expanding their portfolios of electrolyte-filled waters and other healthier choices over the last few years. Coke bought Costa coffee and BodyArmor sports drink last year, while PepsiCo reportedly took in 45% of its revenue from "guilt-free products" in 2017, which included organic versions of many FritoLay snacks.

The "healthy" market has only kept these food and drink giants shaking things up to increase their bottom lines.

They are getting even more innovative, too.

The PepsiCo CFO reported late last year the company was taking a "hard look" at the emerging legal cannabis market. This was only a month after Coca-Cola announced that CBD, or Cannabidiol, was on its radar. Their shared interest in CBD not only signals future revenue growth in an untapped market, it is also a big step toward health consciousness.

CBD is known for its medicinal use, treating ailments such as chronic fatigue, pain, anxiety, and depression. Many smaller companies have sought to create beverages infused with CBD oil, but Coke and Pepsi have the resources to conquer the whole market. CBD could even turn this defensive stock play into great offense if the "year of CBD" goes as expected.

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Plus, these companies have some of the strongest financials you'll find.

Both Coke and Pepsi are expected to increase revenue by 7.6% in 2019. KO currently trades at $45.34 with a high one-year target of $64. PEP goes for $115.40 with a target of $118.68.

KO's price/earnings ratio stands at 30.16 and PEP's at a superb 13.14, while the industry's is 60.10, signaling a great chance to profit from both stocks.

Their growth potential is only reinforced by our proprietary Money Morning Stock VQScore™ system, which gives both stocks a 3.75, just a notch away from the "buy zone."

Even if their prices don't come down, these stocks have the advantage of brand loyalty and other competitive moats in place to keep them stable.

These are great companies that pay big dividends of 3.2% to 3.5% and are not going away anytime soon. This will help you whenever the markets decide to turn down, or if you just need to add some income to your portfolio.

But if you're really looking for big gains fast, this other food and beverage company could make trouble for Coke and Pepsi. It's projected to grow twice as fast in the next year.

This one registers a perfect 4.75 VQScore, meaning it's an immediate buy.

The Best Defensive Stock to Buy Before the Next Recession

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Keurig Dr Pepper Inc. (NYSE: KDP) is not yet a year old, and it's the third largest beverage company in North America. The company came together as a result of Keurig Green Mountain acquiring the Dr Pepper Snapple Group for $18.7 billion last July.

The merger contributed to a 76% growth in net sales by the end of 2018. In their outlook for 2019, Keurig-Dr Pepper expects diluted earnings per share to grow 15% to 17%. The company also expects to reap further rewards from last year's merger, with synergies of over $200 million.

Between the Keurig single-serve coffeemaker, the Dr Pepper line of soft drinks - including A&W, 7Up, and Schweppes - and a host of "allied brands" in both markets, distribution should be of little concern.

But the growing cannabis industry adds yet another potential growth variable.

Unlike Coke and Pepsi, Keurig Dr Pepper has not announced any intention of pursuing CBD-infused beverages. It is, however, in perfect position to capitalize on the impending cannabis boom - when relaxed hemp laws grow the CBD market to $22 billion by 2022, according to the Brightfield Group.

The CBD craze will, of course, be in sync with the "health-conscious" trend, since the product is marketed and used to treat a host of different physical and psychological conditions.

The coffee pod is already a major differentiator between Keurig and its competitors, but its potential employment of CBD would add yet another tool to its arsenal. There are already a few independent single-serve CBD coffee pod providers on the market, but a company like Keurig, with more funds and greater pricing power, could easily dominate any of these when it decides.

Of course, until Keurig formally announces its own line of CBD pods, this is speculative. But it is still more likely than not, and it's still too early in the CBD boom to say anything's impossible.

As with Coke and Pepsi, though, cannabis or no cannabis, Keurig Dr Pepper will be a solid buy in pairing with the defensive KO and PEP stocks.

Wall Street analysts are projecting gains as high as 34% this year for KDP stock. But with a perfect VQScore, a 2.3% dividend yield, and great potential to ride the cannabis wave, the KDP stock could break out even higher.

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About the Author

Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.

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