Are these the best defensive stocks to watch?

What are defensive stocks?

Defensive stocks are companies whose underlying business is expected to generate reliable revenue and profits regardless of the wider economic environment. This could be because they hold a dominant market position, have a reputation for value for money, or even simply provide the bare necessities.

Accordingly, they are usually blue-chip companies benefitting from inelasticity of demand, making them ‘safe havens.’ In other words, if they raise prices to match inflation, consumers will continue to buy the products regardless.

Defensive companies rarely deliver significant capital growth, and therefore tend to underperform during bull markets, even underperforming passive investment in indices such as the FTSE 100. But in bear markets, they can appear more attractive for the consistent earnings.

By contrast, cyclical stocks are businesses which tend to outperform in the good times and fall sharply during downturns. These might include consumer discretionary stocks, miners, or oilers, all of which depend on a healthy economy to thrive.

Investing in defensive stocks — and particularly the timing of an investment — is not simple. If you reposition your portfolio too early, you might miss out on additional growth before a downturn becomes too severe. And when the economy recovers, defensive stocks can become undervalued as investors sell in favour of growth.

This makes buying these types of shares in a bull market and then selling them in bear market a popular contrarian investing strategy; though as always, this is harder to do than it sounds.

The following FTSE 100 dividend stocks can be considered to be some of the more popular defensive companies to own in the UK as many have a reliable history of paying out. But remember, past performance is not an indicator of future returns.

How to trade or invest in defensive stocks

1. Learn more about defensive shares
2. Decide whether you want to trade or invest
3. Open an account
4. Search for your chosen stock on our app or web platform
5. Make your trade or investment

Investors look to grow wealth by buying and holding shares over an extended period of time. Capital can be gained through share price return and dividends (if paid).

Trading often uses leverage and takes a more short—term approach. With leverage, you can take a position larger than your initial deposit. This can amplify potential profits, but it can also amplify potential losses.

For instance, with 5:1 leverage, you could open a £5000 position by depositing a margin of £1000. A 10% market movement could result in a 50% loss or gain on your initial margin.

Although negative balance protection means you won’t lose more than your deposit, markets can be highly volatile and you could lose your whole deposit.

The best defensive stocks to watch

These stocks are the largest defensive stocks on the FTSE 100, if you consider defensive sector companies to be only those which deal in healthcare, consumer staples, utilities or tobacco.

1. AstraZeneca
2. Unilever
3. British American Tobacco
4. GSK
5. Diageo

AstraZeneca (Market cap: 170.93 billion)

AstraZeneca is a multinational pharmaceutical titan which focuses on the development and commercialisation of novel prescription medicines. It works in areas such as cardiovascular, oncology, and respiratory medication — though it has a presence across almost the entire development market.

Healthcare sector stocks remain highly defensive, and AstraZeneca is no exception.

The company’s Q4 results saw revenue reach $14.9 billion, up 25% year—over—year and full year growth increased by 21%, exceeding its high teens guidance. This increase was largely driven by growth across most product segments with particularly strong performances in cancer the Immunology and Respiratory divisions as well as cancer treatments.

By 2030, AstraZeneca aims to bring in $80 billion in revenue. While meeting this target will be difficult, but the company’s strong performance in existing medicines, and its investment in new potential treatments stand it in good stead.

Our analysts have given the stock a buy rating with a predicted price target of 13263p in the next 12-month period, up 14.34% from its current price.

Unilever (Market cap: 116.23 billion)

Unilever is a multinational consumer goods company which produces a wide range of products including food, drinks, cleaning agents, beauty and personal care products. Some of its well-known brands include Dove, Ben & Jerry’s, and Hellmann's. While the company has arguably underperformed in recent years, its turnaround plan seems to be paying off.

Unilever has reported a strong Q3 performance, bringing in a revenue of €15.2 billion. Sales increased by 4.5% year—on—year exceeding market expectations and volumes were up 3.6%. Sales growth was seen across all areas of the business.

Most growth in Q3 was driven by what the company refers to as ‘power brands’. These are the 30 top brands the group owns, which have accounted for up to 75% of sales this year. This trend is expected to continue and the company is anticipated to place most of its investment in these brands going forward.

CEO Hein Schumacher confirmed this ambition claiming: "we are focused on driving high-quality sales growth and gross margin expansion, led by our power brands. Over the first half, we made progress on those ambitions

Our analysts have placed the stock in a hold position with an average price target of 4880p in the next 12—month period, up 5.37% from its current price.

British American Tobacco (58.31 billion)

British American Tobacco is one of the world’s largest tobacco companies, boasting a brand portfolio including Lucky Strike, Dunhill, and Pall Mall. In terms of defensiveness, tobacco is a popular investing theme given the addictive nature of nicotine — though of course there is an ESG element to consider.

However, the company is contending with changing consumer preferences and government intervention. It wrote off circa £25 billion in value of its US-based cigarette portfolio in December 2023 as smoking rates fall — while the UK is planning to implement a ban on disposable vapes, which will come into place in June 2025.

The company’s H1 results were slightly below market expectations with revenue falling 0.8% to £12.3 billion and, as volumes decreased 6.9%, sales went down 2.6%.

Despite this, no changes were made to the full year guidance as the company expects to see growth in H2 as investments made in H1 begin to pay off and they introduce more New Categories products onto the market.

CEO Tadeu Marocco notes that the ‘refined strategy commits us to 'Building a Smokeless World', a predominantly smokeless business, with 50% of our revenue from non-combustibles by 2035. I am confident that the choices we have made will drive our long-term success and create sustainable value for all our stakeholders.’

It’s worth noting however that increased scrutiny surrounding New Categories products may negatively impact profit margins as consumers opt for healthier alternatives.

Our analysts have given the stock a buy position and predict it’ll increase by 7% over the next 12—month period.

GSK (Market cap: 57.10 billion)

GSK — formerly GlaxoSmithKline — is a global biopharma company which aims to positively impact the health of 2.5 billion people by the end of 2030. After spinning out consumer healthcare company Haleon, GSK’s R&D focus is on four therapeutic areas: infectious diseases, HIV, respiratory/immunology and oncology.

The company reported strong full year results with sales increasing by 7% year—on—year, where growth in Specialty and General medicines was able to offset a decline in vaccine sales. Operating profit was up 11% reaching £9.1 billion and the company remain on track to deliver its full year guidance with sales expected to increase by 7—9% and profit by 11—13%.

GSK have recently increased investment in HIV treatment following an improved outlook on the medicine in development. And, although smaller in sales, recent approval of cancer treatment suggests growth potential in this market.

CEO Emma Walmsley claims ‘We have strengthened capabilities in key technology platforms and completed investments to develop new mRNA vaccines, ultra-long-acting HIV medicines and a promising new medicine for severe asthma. All this supports our future growth and confidence to bring meaningful innovation to patients.’

Our analysts have given the stock a hold rating with a price target of 1583p over the next 12—month period, up 12.67% from its current price.

Diageo (Market cap: 53.41 billion)

Diageo is a global leader in premium alcoholic drinks, controlling over 200 brands and with sales in nearly 180 countries. The company owns distilleries which produce 40% of all Scotch whisky including Johnnie Walker — and it also owns Guinness, Smirnoff, Baileys, Captain Morgan, Tanqueray and Gordon's.

The company’s H1 results were better than expected with sales reaching $10.9 billion and free cash flow up from $1.6 billion to $1.7 billion due to better cash management. Despite this, operating profit was down 1.2% because of increased overheads.

Whilst these results show signs of recovery, with its plan to prioritise sales of high—end, luxurious products proving effective, the potential US tariffs could impact profits by up to $200 million. Although the company remains confident price changes could make—up for around 40% of potential losses, uncertainties surrounding this have resulted in Diageo removing its medium term guidance and investor sentiment remains cautious.

Our analysts have placed the stock in a buy position with an average price target of 2798p in the next 12—month period, up 15.69% from its current price.

Top defensive shares to watch summed up

These are just a small selection of some of the best defensive shares to watch in 2025. Always do you own research. Past performance is not a guide to future performance.

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