Stock Quotes in this Article: CLX, CVS, HD, KMB, TRV

BALTIMORE (Stockpickr) -- There's an important message in the all-time market highs that the S&P 500 and the Dow hit last week: If you don't own some defensive names right now, you should.

Going defensive makes sense right now for a couple of reasons. For starters, going defensive in the face of new all-time highs helps limit downside risks in this market. And perhaps more importantly, quality names have been some of the highest performers over the course of this "hated" stock rally. That means that, in this case, a good defense could actually be the best offense in 2013.

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And as we approach the summer, a stretch that generally comes with the year's worst market performance, it makes sense to use a safer strategy that doesn't completely wipe out your exposure to stocks in the middle of a broad-based rally. Going defensive accomplishes that.

That's why we're taking a closer look atfive stocks with the best defensive posture right now.

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There's a quantitative basis for picking these five stocks: over the last five years, this group of stocks has been in the top quartile for maximum drawdowns and boasts consistently higher volatility to the upside than to the downside. That combination means that these names statistically offered up the best upside when times are good and the least downside when times got tough. And times have certainly gotten tough over the course of this data since it includes the crash in 2008.

Without further ado, here's a look at five defensive names you should own this summer.

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Kimberly-Clark

Kimberly-Clark (KMB) embodies the "quality is leading" rally that we're in the middle of right now. Shares of the $40 billion tissue and paper towel maker have rallied close to 24% year-to-date, tacking close to 10% performance onto the run that the S&P 500 has managed since the first trading session of 2013.

KMB fits our defensive mold. The firm's worst drawdown in 2008 was just 34.3%, well shy of the 53% peak-to-trough decline in the S&P 500. Kimberly-Clark also boasts 21% more volatility when it's moving up than when it's moving down.

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With a brand portfolio that includes stalwart names such as Kleenex, Scott and Huggies, Kimberly-Clark's positioning doesn't get much more defensive. This stock may be a consumer staple, but products such as diapers tend to be less subject to consumers' trading down. That added stickiness gives KMB an economic moat that rivals lack. While declining birth rates in the West pose a challenge for KMB's diaper business right now, a burgeoning middle-class population in emerging market countries holds the keys to growth right now.

KMB has been working hard to shore up its business in recent years. Management has been making some arguably drastic moves to right the ship, and investors should applaud that willingness to take risks. One of Kimberly-Clark's biggest attributes is cash -- the firm generates a lot of it. And in turn, KMB passes that cash onto shareholders; the firm's 3.1% dividend yield helps to up its defensive bent.

Investors looking for downside protection could do worse than this paper product company.

Home Depot

Home Depot (HD) may seem like a surprising choice for a defensive portfolio. After all, it's got hefty exposure to housing, an industry that's been staging a shaky recovery in recent years. But looking at the numbers, Home Depot has actually been a defensive name in the last half-decade.

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A big part of Home Depot's resilience comes from the fact that most of the bearish downside scenarios for home improvement retailers never panned out. Instead, when property values dropped around the country, homeowners turned to one of Home Depot's 2,250 stores to build equity through smaller scale projects. While Home Depot itself was overextended as a result of the real estate boom, the firm was quick to restructure itself in the wake of the housing market crash, and it avoided much of the market's downside as a result. Going forward, the firm should be able to avoid repeating history while growing its geographic footprint more cautiously.

Latin American growth looks attractive for Home Depot right now -- more so than the firm's failed foray into China. While the exit from China was a setback, the firm's tiny exposure to the People's Republic meant that the financial impact was minuscule. A 2% dividend payout and a historically-higher bull-market beta makes HD a solid defensive holding right now.

Travelers

Insurance giant Travelers (TRV) is another defensive name worth owning in 2013. Travelers is a major commercial and personal lines insurer, with products that include auto, homeowners, and business insurance. Travelers benefits from the network effect -- its network of 10,000 agents and brokers means that more consumers have a chance to learn about TRV's offerings and ultimately buy its insurance products.

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The insurance business has become increasingly commoditized in recent years, a trend that's meant better prices for consumers but thinner margins for insurers. Scale is Travelers' way around that limitation -- because the firm can spread risk across a bigger pool of clients than smaller peers, it's able to compete better on price too. Like other insurers, TRV has a massive investment portfolio that requires careful management -- the firm can't reach for high returns and risk insolvency if a catastrophic event crashes its investments and triggers claims. As a result, Travelers has kept a defensive bent to its own funds, making it an even better defensive name for investors.

Financially, the firm is in good shape, with a reasonable amount of leverage on its balance sheet and healthy capital reserves. A 2.4% dividend yield is healthy for a financial sector firm in 2013.

CVS Caremark

Shareholders of CVS Caremark (CVS) are having a solid 2013 -- shares of the retail pharmacy and benefits manager have rallied almost 25% so far this year. CVS has had some good timing lately. The firm acquired Caremark in 2007, buying exposure to a stable pharmacy benefit manager just as the floor was falling out of the economy; as a result, CVS actually managed to grow during the recession.

Today, CVS Caremark boasts more than 7,000 retail pharmacies and benefits management for around 1 billion prescriptions each year. More recently, the introduction of MinuteClinic health clinic locations at around 500 of CVS' retail locations has provided attractive exposure to a growing corner of the healthcare business. As healthcare costs continue to push consumers away from conventional physicians' offices, cheaper alternatives like MinuteClinic offer a big advantage for health screenings and minor medical treatment.

The addition of MinuteClinic to CVS' stable of offerings is important for another reason -- it creates a complete vertical integration of healthcare provider, benefits management and retail pharmacy, a combination that should keep costs low and incentivize customers to use CVS each step of the way. Of the defensive names on our list, CVS has the biggest differential between its bull market beta and its bear market beta. That means that this stock benefits way more when times are good than it suffers when they aren't.

I also featured CVS in "5 Trading Setups With Upside This Week."

Clorox

Last up is Clorox (CLX), a quintessential defensive play. While Clorox gets lumped in with other consumer staple stocks, this firm's scale isn't close to some of the industry's biggest players -- but in some ways, that's actually an advantage for CLX. It means that the firm has some big growth opportunities ahead of it, unlike saturated rivals who struggle to find growth.

Clorox owns a stable of brands that includes Glad, Hidden Valley and Brita, in addition to the firm's household-name bleach products. What it lacks is geographic diversification. Right now, around 80% of sales come from the U.S. If CLX can expand its reach outside of the country, it has a huge market to cater to, particularly in emerging countries where demand for new products continues to grow.

Clorox's balance sheet looks attractive, with a $423 million cash position offsetting a material chunk of the firm's $2.5 billion debt load. Of all of the names on our list, Clorox has one of the best defenses against market drops; the firm saw a maximum drawdown of 28% in 2008, a maximum dip that was around half what the S&P gave back. CLX looks like a bargain relative to its peers right now. That should help spur upside in shares this quarter.

To see these stocks in action, check out the at Defensive Stocks portfolio on Stockpickr.



-- Written by Jonas Elmerraji in Baltimore.

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji