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3 defensive stocks that got smashed by the market

There’s nothing like some European banking jitters to get the market spooked!! As Mike King reported, these jitters wiped $25 billion off of the market in just six hours.

Whether the situation in Cyprus leads to anything more serious such as financial contagion or bank runs throughout the European Union (EU), only time will tell. For now, investors should keep things in perspective and remember Cyprus is a small economy and a hiccup there is unlikely to have any major, lasting impact on the world economy.

The 2.05% fall in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) unsurprisingly took its toll on many mining stocks including Fortescue Metals (ASX: FMG), which was down nearly double the index at 3.9%. Interestingly, some stocks which are generally considered “defensive” and could be expected to perform less badly in a sell-off finished the day well below the index. These stocks include Primary Health Care (ASX: PRY), Ansell (ASX: ANN), and Woolworths (ASX: WOW) which were all down between 3.5% and 5%.

Given the market has been rallying since mid-2012; no one should be surprised by a pull-back in stocks. Looking further ahead, whether the index continues its upward trend or not, does requires a crystal ball. Many investors and analysts have started to question the relative valuation of a number of “blue-chip” Australian companies, comparing them to relatively cheaper overseas alternatives. This makes the oversized drop in the “defensive” or “blue-chip” stocks interesting, as perhaps the sellers are acknowledging the stretched valuations.

Foolish takeaway

By always focusing on the price you are paying and the value you are receiving for your investments, you can sleep well at night. The next morning, you are well rested and with a level head can carry on applying a disciple approach to investing, rather than agonising over the latest blip in the market.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in Primary Health Care.

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