7 Stocks That Soar in a Recession

Consider these defensive stocks during a market downturn.

Aggressive Federal Reserve interest rate hikes, the economic stress from the conflict in Ukraine and persistently elevated 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 occur. 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 is the leader in electronic design automation, or EDA, with a 31% market share. Freeman says the EDA business will benefit from snowballing chip design complexity, and he projects 17% annual revenue growth for Synopsys over the next three years. CFRA has a “strong buy” rating and $424 price target for SNPS stock, which closed at $275.99 on May 13.

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 money by bargain hunting at Target. Analyst Arun Sundaram says investors should consider Target a core, long-term holding given its ability to leverage its omnichannel retailing opportunities to gain market share from competitors. Sundaram says Target delivers consistent results and is on track to achieve its goals of mid-single-digit revenue and operating-income growth, and high-single-digit earnings growth. CFRA has a “buy” rating and $288 price target for TGT stock, which closed at $219.73 on May 13.

S&P 500 outperformance: 24.2% (2020), 8.5% (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 is one of the best ways to invest in consumer home spending, and Lowe’s management has executed extremely well in recent years. Do-it-yourself project demand faces inflation headwinds this year, but Leon says the Pro segment of Lowe’s will outperform. CFRA has a “buy” rating and $275 price target for LOW stock, which closed at $194 on May 13.

S&P 500 outperformance: 20.1% (2020), 35.2% (2008)

Walmart Inc. (WMT)

Like Target, discount retailer Walmart has thrived during economic downturns. Sundaram says investors don’t seem to fully appreciate the extent to which Walmart is investing in pursuing omnichannel sales opportunities, creating alternative profit sources, improving its supply chain and diversifying its product and geographical mixes. He says the majority of Walmart’s $16 billion to $17 billion in capital expenditures in 2022 will go toward e-commerce, technology and automation. Walmart is also investing in growth opportunities such as its Walmart+ subscription offering and its Walmart Connect advertising business. CFRA has a “buy” rating and $165 price target for WMT stock, which closed at $148.05 on May 13.

S&P 500 outperformance: 7% (2020), 59.3% (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’s diversified businesses, its growing 1.7% dividend and its strong balance sheet will help the stock outperform health care peers. Meyer says COVID-19 test sales are a tail wind in the near term, while Abbott’s earnings growth and market share gains should generate share price upside in the longer term. CFRA has a “buy” rating and $142 price target for ABT stock, which closed at $109.88 on May 13.

S&P 500 outperformance: 11.7% (2020), 36% (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 play 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 a large backlog of renewable-focused projects and storage development contracts should generate earnings growth for NextEra through at least 2024. CFRA has a “buy” rating and $92 price target for NEE stock, which closed at $69.80 on May 13.

S&P 500 outperformance: 13.8% (2020), 15% (2008)

Home Depot Inc. (HD)

Home improvement giant Home Depot benefited from the same tail winds that drove the outperformance for Lowe’s 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 significant pullback from its 2022 highs is a buying opportunity for long-term investors. In the near term, Leon says that Home Depot faces ongoing supply chain challenges and that investors should monitor the volatile lumber market. Lumber is Home Depot’s best-selling material, and elevated lumber prices could weigh on peak summer sales. CFRA has a “buy” rating and $395 price target for HD stock, which closed at $296.03 on May 13.

S&P 500 outperformance: 8.2% (2020), 27.2% (2008)

These seven stocks can keep going strong in a rocky market:

— 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 05/16/22: This story was published at an earlier date and has been updated with new information.

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