Consider these defensive stocks during a market downturn.
Aggressive Federal Reserve interest rate hikes, 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 might help you play defense in the 2022 bear market as well. 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. In a difficult environment, Synopsys recently reported 25% revenue growth, 47% earnings per share growth and a 5.8% operating margin expansion in the most recent quarter. Analyst John Freeman says Synopsys’ high-margin intellectual property business is booming and the company’s overall fundamentals are improving. CFRA has a “strong buy” rating and $429 price target for SNPS stock, which closed at $296.18 on June 17.
S&P 500 outperformance: 70% (2020), 9.9% (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 home improvement stocks may be resistant to an economic recession in 2022 or 2023. Models indicate nearly 20% growth in home improvement spending in 2023, and Leon is anticipating particularly strong demand for Lowe’s Pro segment. CFRA has a “buy” rating and $235 price target for LOW stock, which closed at $172.47 on June 17.
S&P 500 outperformance: 20.1% (2020), 35.2% (2008)
Walmart Inc. (WMT)
It’s no surprise that discount retailer Walmart outperformed during each of the past two recessions. Americans can’t go without groceries when times get tough, but they can save money by bargain hunting at Walmart. Analyst Arun Sundaram says investors don’t fully appreciate how much Walmart has invested in a wide range of improvements to its business model in recent years, particularly in key growth areas such as e-commerce, technology and automation. Walmart is also expanding into alternative revenue sources, such as advertising, data monetization and financial services. CFRA has a “buy” rating and $162 price target for WMT stock, which closed at $118.29 on June 17.
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 business, strong financial position and consistent dividend growth are a recipe for outperformance in any climate. In the near term, Meyer says, Abbott will likely continue to gain market share and benefit from COVID-19 test sales. In the longer term, Diabetes Care medical devices will be a growth driver, she says. CFRA has a “buy” rating and $142 target for ABT stock, which closed at $102.53 on June 17.
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 NextEra is positioned for strong earnings per share growth, driven by its sizable backlog of renewable energy and storage-development contracts. CFRA has a “buy” rating and $92 price target for NEE stock, which closed at $70.81 on June 17.
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 34% pullback in 2022 is a buying opportunity, and Home Depot is effectively navigating supply chain disruptions. Leon says Home Depot has a reputation for delivering in challenging environments, and he projects positive same-store sales growth throughout the remainder of 2022. CFRA has a “buy” rating and $375 price target for HD stock, which closed at $270.73 on June 17.
S&P 500 outperformance: 8.2% (2020), 27.2% (2008)
Accenture PLC (ACN)
Accenture is a global information technology services firm. The company generates nearly half of its revenue from North America, about a third from Europe and the remainder from other parts of the world. The company’s diversified consulting and services business has made it recession-resistant in the past and will likely continue to do so in the future. Analyst David Holt says Accenture shares are attractive in the current environment given the company’s solid financial position, its long-term track record of earnings growth and its exposure to secular growth trends. CFRA has a “buy” rating and $411 price target for ACN stock, which closed at $275.38 on June 17.
S&P 500 outperformance: 9.8% (2020), 31% (2008)
7 stocks that excel even in a recession:
— Synopsys Inc. (SNPS)
— Lowe’s Cos. Inc. (LOW)
— Walmart Inc. (WMT)
— Abbott Laboratories (ABT)
— NextEra Energy Inc. (NEE)
— Home Depot Inc. (HD)
— Accenture PLC (ACN)
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Update 06/20/22: This story was published at an earlier date and has been updated with new information.