7 Stocks That Soar in a Recession

Consider these defensive stocks during a market downturn.

A recent yield curve inversion, the economic stress from the conflict in Ukraine and high inflation have investors concerned about a potential U.S. recession coming at some point in the next year or two. When the U.S. economy tanks, even most high-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 if a bear market does come into play. Here are seven stocks that CFRA Research analysts recommend that outperformed the S&P 500 in both 2008 and 2020.

Synopsys Inc. (ticker: SNPS)

Synopsys provides a platform on which engineers can design and test semiconductor chips and other software applications. The global semiconductor industry is likely a secular growth market, so demand for chip testing and design services is constant — even during an economic downturn. Analyst John Freeman says Synopsys has an attractive valuation and a strong fundamental outlook over the short and long term. He says Synopsys is a major beneficiary from the snowballing complexity of electronic design automation, which made up about 55% of the company’s total revenue in 2021. CFRA has a “strong buy” rating and a $424 price target for SNPS stock, which closed at $306.33 on April 19.

S&P 500 outperformance: 70% (2020), 9.9% (2008)

Target Corp. (TGT)

It’s no surprise that discount retailer Target outperformed during each of the past two recession years. Americans can’t go without groceries when times get tough, but they can save elsewhere by bargain hunting at Target. Analyst Arun Sundaram says investors should see Target as a core, long-term stock holding given its strong positioning in the next-generation omnichannel retail market. Sundaram says Target is on track to continue to gain market share and deliver mid-single-digit revenue and operating income growth and high-single-digit earnings per share growth over the next several years. CFRA has a “buy” rating and a $288 price target for TGT stock, which closed at $246.05 on April 19.

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 management has superbly executed its strategy, and investors should consider Lowe’s stock as a core, long-term growth investment. Leon says Lowe’s professional contractor segment will pick up the slack from its do-it-yourself segment in fiscal 2023 as inflation reduces disposable income. CFRA has a “buy” rating and a $275 price target for LOW stock, which closed at $203.04 on April 19.

S&P 500 outperformance: 17.7% (2020), 33.6% (2008)

Walmart Inc. (WMT)

Like Target, discount retailer Walmart has thrived during economic downturns. Walmart is expected to allocate between $16 billion and $17 billion in capital expenditures in 2022, more than $6 billion higher than its historical spending levels. Sundaram says heavy investments in long-term growth sources such as omnichannel sales, alternative profits, supply chain upgrades, and product and geographic mix improvements will pay off for Walmart investors down the line. Sundaram is bullish on Walmart’s e-commerce, technology and automation opportunities and is projecting another 3.2% revenue growth in fiscal 2023. CFRA has a “buy” rating and a $165 price target for WMT stock, which closed at $157.65 on April 19.

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 actually outperformed by an even wider margin in 2008. Analyst Paige Meyer says Abbott should surpass its peers given its diversified health care business, its impressive balance sheet, its consistent dividend growth and its market share gains. Meyer says COVID-19 test sales will be a near-term revenue growth driver for Abbott, while its innovative product pipeline will be a long-term growth driver. CFRA has a “buy” rating and a $140 price target for CFRA stock, which closed at $119.98 on April 19.

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 flight-to-safety investment during economic downturns. Utility companies have stable and predictable demand and cash flows, as well as limited competition. NextEra shares outperformed the S&P 500 by double-digit percentages in both 2008 and 2020. Analyst Daniel Rich says NextEra’s renewable-energy-focused $40 billion in capital expenditures through 2024 should help generate long-term earnings growth. CFRA has a “buy” rating and a $90 price target for NEE stock, which closed at $81.83 on April 19.

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 so far in 2022 is a buying opportunity ahead of spring and summer do-it-yourself project season. Home Depot will continue to face challenges from supply chain disruptions and elevated lumber prices, but Leon says the company should still generate low-single-digit sales growth in fiscal 2023. CFRA has a “buy” rating and a $395 price target for HD stock, which closed at $307.80 on April 19.

S&P 500 outperformance: 5.3% (2020), 23.9% (2008)

7 stocks that soar in a recession:

— Synopsys Inc. (SNPS)

— 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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7 Stocks That Soar in a Recession originally appeared on usnews.com

Update 04/20/22: This story was published at an earlier date and has been updated with new information.

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