Consider these defensive stocks during a market downturn.
With the economy struggling to recover from two years of pandemic and facing new stress from inflation and conflict in Europe, it’s a good time to think about investing during a recession, even if we’re not there yet. When the U.S. economy tanks, even some of the highest-quality stocks get dragged down with it. However, during the past two U.S. recessions, in 2008 and 2020, there were still a handful of stocks that significantly outperformed the S&P 500. These recession-resistant stocks can help you play defense during a bear market. The S&P 500 dropped 38.5% in 2008 and rebounded from its crash in early 2020 to gain 16.3% for the year. These seven stocks outperformed the S&P 500 in both 2008 and 2020 and come with “buy” ratings from CFRA Research.
Netflix Inc. (ticker: NFLX)
At first glance, it may seem strange that video streaming service Netflix, which relies on discretionary spending, would perform so well during times of economic difficulty. Netflix’s strength in 2008 and 2020 may have to do with Americans cutting back on pricier entertainment options during financial hardship. Netflix provides access to thousands of shows and movies for a relatively low monthly fee. In 2022, analyst Tuna Amobi says Netflix still has pricing leverage and a long runway for subscriber growth, particularly in international markets. CFRA has a “buy” rating and a $525 price target for NFLX stock, which closed at $340.32 on March 11.
S&P 500 outperformance: 50.8% (2020), 50.9% (2008)
Target Corp. (TGT)
It’s no surprise that retailer Target outperformed during each of the past two recession years. Americans can’t go without groceries when times get tough, but they can bargain-hunt at Target to help balance stretched budgets. Analyst Arun Sundaram says investors should view Target as a core, long-term growth holding, given its ability to consistently meet its targets of mid-single-digit revenue and operating income growth and high-single-digit earnings growth. As Target continues to execute its omnichannel strategy, Sundaram says, the market will likely reward the stock via earnings multiple expansion. CFRA has a “buy” rating and a $288 price target for TGT stock, which closed at $206.97 on March 11.
S&P 500 outperformance: 21.4% (2020), 7.6% (2008)
Lowe’s Cos. Inc. (LOW)
One of the first ways the Federal Reserve typically reacts to a recession is to cut interest rates. Low mortgage rates, coupled with a lack of entertainment and leisure activities during social distancing, triggered a boom in the housing and home improvement markets in 2020. Analyst Kenneth Leon says Lowe’s has a supply chain advantage over smaller competitors and should be a core holding in the current environment. Leon expects the company’s professional customer segment to outperform in coming years after a boom in do-it-yourself sales in 2020. CFRA has a “buy” rating and a $275 price target for LOW stock, which closed at $222.21 on March 11.
S&P 500 outperformance: 17.7% (2020), 33.6% (2008)
Walmart Inc. (WMT)
Like Target, discount retailer Walmart has thrived during economic downturns. Sundaram says investors don’t fully appreciate the breadth and depth of Walmart’s investments in omnichannel sales initiatives, alternative profit sources, supply chain improvements and product mix expansion. Walmart is expected to invest $16 billion to $17 billion in capital expenditures in 2022, and Sundaram says those e-commerce, technology and automation investments will pay off for long-term investors. He says shoppers may start to become more price-conscious this year with inflation levels at 40-year highs. CFRA has a “buy” rating and a $165 price target for WMT stock, which closed at $142.07 on March 11.
S&P 500 outperformance: 5% (2020), 20.6% (2008)
Abbott Laboratories (ABT)
Abbott Laboratories is a diversified health care products company. It’s understandable why many health care stocks outperformed during the pandemic in 2020, but Abbott’s shares outperformed by an even wider margin in 2008. Analyst Paige Meyer says Abbott’s diversified business, impressive balance sheet and dividend growth will help the company attract investor attention and gain market share. Meyer says COVID-19 will continue to be a near-term catalyst for Abbott. Growth segments like diabetes care medical devices will be long-term bullish catalysts. CFRA has a “buy” rating and a $140 price target for ABT stock, which closed at $114.02 on March 11.
S&P 500 outperformance: 9.8% (2020), 33.6% (2008)
NextEra Energy Inc. (NEE)
NextEra Energy is a utility holding company and the parent of Florida Power & Light and NextEra Energy Resources. Utility sector stocks are generally considered defensive investments and are often a preferred investment during economic downturns. Utility companies have stable and predictable demand and cash flows, and a high barrier to entry limits competition. NextEra shares outperformed the S&P 500 by double-digit percentages in both 2008 and 2020. Analyst Daniel Rich says he expects strong earnings growth and aggressive spending on renewable initiatives for NextEra. CFRA has a “buy” rating and a $90 price target for NEE stock, which closed at $79.30 on March 11.
S&P 500 outperformance: 11.1% (2020), 12.8% (2008)
Home Depot Inc. (HD)
Home improvement giant Home Depot benefited from the same tail winds that drove Lowe’s outperformance in 2020 and 2008. When virtually the entire retail sector was crushed in 2020, home improvement was one of the few pockets of outperformance. Leon says Home Depot’s more than 20% pullback from its 2022 highs is a buying opportunity, and do-it-yourself demand should start to pick up in the spring. He says Home Depot will continue to deal with near-term challenges, however, such as professional segment market share losses and elevated lumber costs. CFRA has a “buy” rating and a $395 price target for HD stock, which closed at $316.79 on March 11.
S&P 500 outperformance: 5.3% (2020), 23.9% (2008)
Seven stocks that soar in a recession:
— Netflix Inc. (NFLX)
— Target Corp. (TGT)
— Lowe’s Cos. Inc. (LOW)
— Walmart Inc. (WMT)
— Abbott Laboratories (ABT)
— NextEra Energy Inc. (NEE)
— Home Depot Inc. (HD)
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Update 03/14/22: This story was published at an earlier date and has been updated with new information.