2 defensive stocks to protect your portfolio against downside risks

Now is a good time to switch to defensive stocks with these two quality stocks in the consumer staples and healthcare sectors.

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The financial world can be a scary place. Just look at the list of negative developments weighing on financial markets right now – steep declines in commodity prices such as oil and iron ore, the ECB weighing up its own version of quantitative easing to avert deflation and Greece flirting with an exit from the Euro.

However this isn't a time to get out of the market because it is not possible to time the market – sentiment can change very quickly and if you're out of the market you could miss a spectacular run. Instead you can look to switch your holdings to defensive stocks, a group of stocks that are much more immune to the swings in macroeconomic fortunes.

Consumer staples like food and household products will be in demand regardless of the economic climate – after all you will still need to go about your daily life even if your budget is smaller. Traditionally companies that operate supermarkets like Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) would top the list in this sector. However stiff competition from cheaper alternatives like Costco and Aldi have threatened their market positions, so they may not be the blue chips that they once were.

An alternative would be providers of packaging to consumer staples, such as Pact Group Holdings Ltd (ASX: PGH). The company provides stiff plastic packaging solutions for a wide range of consumer staples, deriving more than 70% of its revenues from this segment. With its reputation and track record of providing innovative solutions for clients, it could be a defensive growth option. Further it is exposed to the fast-growing Asian markets such as China and Indonesia, deriving nearly 30% from the segment.

The healthcare sector is also very defensive – health is your number one asset and it's not worth skimping on it. This means that people will continue to visit GPs and require pathology and imaging services.

As an operator of these services Primary Health Care Ltd (ASX: PRY) would be a good option. Not only are their large scale medical centres very profitable, but they also have the country's largest footprint of pathology collection centres, which make them well placed to contest for continued outsourcing of this service from the public sector. The recent backflip on Level B GP consultation fee rebates provides slight reprieve to bulk billing GPs. Also whilst the spectre of a $5 GP co-payment looms large I believe it is actually a positive industry disruption for the company.

Motley Fool contributor Simon Chan does not own shares in any of the companies mentioned in this article.

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