Market Volatility Will Require A Defensive Investment Strategy

US markets opened lower Friday, as investors remain cautious amid concerns over the crisis in Europe and the threat of another global recession.  As politicians and economists struggle to find a solution to the economic problems plaguing seemingly every corner of the economy, investors are left wondering where to invest their money for growth and stability in the face of market volatility.

While the Dow Jones Industrial Average has closed lower for seven out of the past nine weeks, and major indices have been exhibiting bearish flag formations, there are a handful of securities that have enjoyed steady gains which you may want to consider adding to your portfolio.

These stocks have continued to show upward momentum despite the miserable conditions plaguing the market, and could act as portfolio insurance regardless of market direction.

In the event of another global recession, a defensive investment strategy could be your only hope of coming out ahead. Boasting stable dividends and consistent earnings, these stocks are better positioned to withstand the market’s wild swings, and could be positioned to outperform other securities should the market recover.

Growth And Yield Defensive Investment Strategy

The success of your defensive investment strategy will require a focus on companies that combine steady growth and consistent dividend yield.

American Electric Power Company (NYSE: AEP) Stock Chart

American Electric Power Company (NYSE: AEP) Stock Chart

Located mainly in southern and central United States, American Electric Power (AEP), an electric utilities holding company, is widely recognized for its dividend policy and stable earnings.  While compared to the broad market, utility companies are considered to be expensive, they can be a more predictable buy due to their regulated business model.

Electric utility rates have fallen along with natural gas prices, an occurrence that utilities have profited from.  This has allowed utility companies to grow earnings through investments rather that a raising rates for consumers.

American Electric Power boasts a yield of 5% and a “strong buy” rating from S&P.  While the company will be installing new technology in the coming years in order to comply with new EPA regulations concerning the clean burning of coal, AEP may be able to pass on some of these costs to the consumer.

In April, American Electric Power made a break from a long-term bearish resistance line, and with the exception of a brief period of selling pressure in August which saw the price fall to $33.50, has traded between $36 and $39.  Breaking from the bullish “W” formation seen currently puts the price target for AEP at $44.

Blue-Chip Play For A Defensive Investment Strategy

Another stock to consider as part of your defensive investment strategy is General Mills (GIS).  The blue-chip producer of packaged consumer food products, has enjoyed consistent earnings growth and increasing dividends for a number of years.  This has caused General Mills to become a favorite of both institutional and retail investors alike.

General Mills, Inc (GIS) Stock Chart

General Mills, Inc (GIS) Stock Chart

General Mills has a dividend yield of 3%, and has not reduced or interrupted dividends for over 100 years. Widely considered to be the benchmark of a recession resistant stock, General Mills could provide investors with a combination of growth potential and stable dividend income.

In the event of another recession, lower commodity prices will bode well for the company. Without high commodity prices to eat away at profit margins, and steady demand for their products, General Mills could pack the one-two punch of stability and growth to keep your portfolio on track no matter what direction the market is heading.

The old saying of, “the best offense is a good defense” certainly rings true when it comes to investing in today’s market.  With the proper defensive investment strategy, you could shield yourself from losses and even realize gains in what is sure to be a highly volatile trading environment.