3 Defensive Stocks That Will Outperform the Market Over the Next 10 Years

Stocks are holding up well thus far in 2023 after a strong rally. However, historically, September is a challenging month for the market. Now may be a good time for investors to be selective and consider defensive stocks.

Companies operating in defensive industries provide investors with relative safety due to many factors. These companies may operate in sectors with very stable demand, unlikely to falter in macro headwinds. Or, they could have some massive moats around their integrated supply chains or vertical business models. In either case, such defensive stocks are great holdings for investors when times get tough. For those who think we may head into a recession in the next couple of years, there’s significant value to holding such stocks right now.

Indeed, the valuations of the companies on this list aren’t at rock-bottom levels. That’s for good reason. Plenty of investors see the value in holding these defensive stocks. That said, for those thinking we may be due for some pain ahead, these are the stocks I believe are worth sticking with.

Restaurant Brands International (QSR)

One month after reporting Q2 earnings, Restaurant Brands International (NYSE:QSR) is down nearly 10%, significantly underperforming the S&P 500. The company’s Q2 adjusted earnings per share came in at 85 cents, up 3.7% from last year. Additionally, quarterly net revenues of $1,775 million exceeded the consensus estimate of $1,746 million, an 8.3% year-over-year increase. Higher sales at Tim Hortons, Burger King, Popeyes and Firehouse Subs drove that growth, offset in part by unfavorable FX rates. Global system-wide sales rose 14% during the quarter.

The company’s decline was likely due to investors stepping away from a valuation multiple that may look relatively expensive. That said, it’s my view the company’s valuation is reasonable, considering its relative defensive positioning in this market.

Restaurant Brands aims to expand its brands globally, opening 169 new restaurants in Q2, contributing to a 4.1% year-over-year growth. It’s expanding globally, with its first overseas Firehouse in Zurich, Switzerland, and targets 40,000 locations. Restaurant Brands is my top choice and the biggest part of my portfolio, offering growth, income and value with a 3.18% dividend yield.

Berkshire Hathaway (BRK-B)

Berkshire Hathaway (NYSE:BRK-B), led by the one and only Warren Buffett, is a conglomerate with an impressive portfolio of global holdings. The company, led by Buffett, picks its long-term positions via a value investing philosophy. Berkshire holds significant stakes in American Express (NYSE:AXP), Apple (NASDAQ:AAPL) and Coca-Cola (NYSE:KO) — among others. In Q2, Berkshire Hathaway exited positions in McKesson (NYSE:MCK) and Marsh & McLennan (NYSE:MMC) while opening new positions in homebuilder stocks, notably D.R. Horton (NYSE:DHI), NVR (NYSE:NVR) and Lennar (NYSE:LEN). Warren Buffett also increased holdings in Capital One Financial (NYSE:COF) but reduced positions in Activision Blizzard (NASDAQ:ATVI) and General Motors (NYSE:GM).

At 93, Warren Buffett remains active, and his company is at an all-time high, with strong Q2 results and savvy stock picks. Berkshire’s diverse businesses ensure earnings stability. Q2 earnings grew 6.6%, boosted by insurance investments. The stock’s premium is justified by Buffett’s track record.

Buffett excels at seizing investment opportunities. High interest rates boosted returns on Berkshire Hathaway’s cash pile. Buffett made strategic investments in major U.S. home builders to capitalize on the housing market. His knack for smart investments reaffirms his success, and I expect his team will continue this performance over the long term.

Duke Energy (DUK)

Duke Energy (NYSE:DUK) is among the leading utility companies in the market. For investors seeking relative stability, utility stocks are a great place to start. These companies typically provide very stable income because customers can’t really stop paying their bills. So, even in times of trouble, these companies are able to pay out impressive dividends and retain their valuations.

Duke has been doing just that, recently increasing its dividend to $1.02. Currently, this distribution translates into a yield of 4.4%, roughly in line with the industry average. However, its high payout ratio raises sustainability concerns. I think the company’s future earnings per share growth will support a lower payout ratio, though time will tell if I’m right.

As mentioned, utilities like Duke Energy are often considered recession-resistant due to consistent demand and regulation. Duke’s stock weathered 2022 well, declining only 2%.

Duke Energy’s Q2 revenue exceeded expectations at $6.58 billion, reaffirming its 2023 earnings-per-share guidance with 5% to 7% projected growth. Also, the stock is cheap and well-positioned. It remains among my top utilities picks right now.

On the date of publication, Chris MacDonald has a long position in QSR, BRK-B. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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