Goldman Picks 23 Defensive Stocks for Those Wary of AI

Investors nervous about the AI trade are being pointed by Goldman Sachs toward consumer staples and health care.

The recommendation arrives under a week after RBC Capital Markets trimmed technology exposure to market weight. On October 14, RBC flagged health care as the alternative.

Rate Pressure Mounts on the AI Earnings Engine

Interest rates form the starting point of Goldman's argument. Ben Snider's analyst team said months of rate pressure have made investors more anxious about the cost of capital. As a result, the equity market has cut its growth expectations.

“A sharp reduction in investor positioning has amplified equity market moves,” the analysts said.

Goldman's Cyclicals vs. Defensives pair was down 6% during the latest 2 weeks, with cyclicals trailing defensive stocks.

That carries weight for index investors because Goldman estimates AI capital spending is responsible for around half of S&P 500 earnings growth. As spending growth slows, the bank expects that contribution to shrink. For S&P 500 earnings growth, the projection is a slowdown from roughly 29% in 2026 to 18% in 2027.

RBC came to health care by a different route. Lori Calvasina, the firm's head of US equity strategy, said the pace of upward earnings revisions remains strong for tech as a whole, but added that the pace has started to slow a bit for semiconductor and chip equipment stocks in the Russell 3000.

Chip equities weakened during that same week. The Philadelphia Semiconductor Index closed the period down 6%, its biggest weekly drop since April 2025.

Cash Flow Anchors Goldman's Defensive Screen

Goldman ran a separate screen on individual names. The resulting list includes 23 health care and staples companies with low volatility and generous free cash flow yields.

The 23 names, with year-to-date returns, are as follows:

• Tyson Foods: -7.9%
• Royalty Pharma: +56.0%
• CVS Health: +16.8%
• JM Smucker: +29.9%
• Kroger: +0.9%
• Cardinal Health: +22.9%
• HCA Healthcare: -2.6%
• Hormel Foods: -14.1%
• Performance Food Group: +6.4%
• Sysco: +10.7%
• Kenvue: +9.4%
• Hershey: -8.2%
• US Foods: +33.3%
• Merck: +36.5%
• ResMed: -0.5%
• Quest Diagnostics: +35.4%
• Chemed: +18.8%
• Abbott Laboratories: -16.9%
• Mondelez International: +17.7%
• McKesson: +23.2%
• Church & Dwight: +24.1%
• AbbVie: +23.7%
• Colgate-Palmolive: +18.2%

A few entries have trailed lately, yet could close the gap if investors slash earnings growth expectations in a hurry. Tyson Foods shows the screen's highest free cash flow yield at 11% for the trailing 4 quarters.

Tyson's shares are almost 8% lower since the start of 2026. During the past 6 months, the stock has fallen by about 16.8% and closed at $54 on October 19. Its dividend yield is 3.72%.

CVS Health made the basket with a free cash flow yield of 9%. Since the beginning of 2026 the shares have risen nearly 17%, but they have slipped 15% over the past 3 months. CVS yields 2.88%.

Clients also heard from Goldman strategists that health care tends to be one of the strongest S&P 500 sectors when growth remains positive but decelerates.

Still, Goldman's base case remains one of ongoing earnings growth. Its economists see weaker energy prices and falling rates in 2027 lifting household spending and helping consumer-facing stocks that have lagged.

The defensive screen addresses the alternative. Investors fearing a weaker outcome, the bank said, “should focus on stocks in defensive industries with ‘quality’ attributes.”