UBS likes these defensive plays – which also happen to offer solid dividends

CNBC

21 hours ago

The S & P 500 has made a stunning comeback from its lows in April, but UBS said investors would be wise to add some defensive stocks to their portfolios to guard against uncertainty. In a June 6 report, UBS global equity strategist Andrew Garthwaite gave several reasons why his team is cautious on many cyclical names – that is, stocks whose performance is closely tied to the economic cycle – excluding financials. "UBS forecasts US GDP to slow (from 2.1% YoY in Q1 to 0.9% in Q4), soft data has weakened sharply in the US – much more than hard data, which is now turning down – and UBS recession indicators show overall recession probability has ticked up to 37% in the next 12 months," he wrote. Even as stocks have made a strong recovery since the Trump administration announced a raft of tariffs in April, plenty of hurdles remain. For starters, the U.S. budget deficit ballooned to $316 billion in May , bringing the year-to-date total to $1.36 trillion. Further, U.S. and Chinese officials are awaiting approval of a trade policy framework. And the Federal Reserve's next steps on interest rate policy are still up in the air. That's where defensive plays come in. Garthwaite noted that cyclicals are looking expensive compared to defensive names on a price-to-earnings and price-to-book basis. He and his team plucked a few buy-rated names within the S & P 500 that could be worth consideration. "On the defensive side, we focus on names without high leverage (to avoid the risk of higher bond yields)," said Garthwaite. To top that off, several of the names also pay dividends, which can help cushion investors' portfolios from market jolts. Johnson & Johnson One of the names Garthwaite's team highlighted include Johnson & Johnson . Shares are up more than 7% in 2025, and the stock pays a dividend yield of about 3.4%. Analysts largely deem the stock a hold, seeing more than 9% upside from current levels, according to LSEG. Last month, Goldman Sachs lifted its price target on the pharmaceutical giant to $176 from $172, placing Johnson & Johnson on its conviction list. "JNJ is a stable, defensive grower with the industry's strongest balance sheet allowing for continued high [return on invested capital] investments in the Innovative Medicines segment to augment revenue growth," Goldman said in a May report. The firm noted that Johnson & Johnson "has a strong pipeline," including "meaningful revenue opportunities" in medications to treat multiple myeloma, lung cancer and other maladies. PepsiCo The snacking and soda giant made it to UBS's list as a buy-worthy defensive play. Shares have slid nearly 15% in 2025, and the stock pays a dividend yield of 4.4%. Analysts largely rate PepsiCo a hold, but consensus price targets call for almost 15% upside from where the Frito-Lay parent currently trades, according to LSEG. In May, the company raised its quarterly dividend to $1.4225 per share, a 5% increase from the year-ago period. The company has been paying steady dividends since 1965, and this year marked its 53rd consecutive annual dividend increase. PepsiCo has also been growing its product line lately. Last month, the Gatorade maker completed its acquisition of probiotic soda brand Poppi for $1.95 billion, including $300 million of anticipated cash tax benefits . Other buy-rated dividend payers on UBS's list included Merck , Elevance Health and Cigna .