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 a U.S. recession may be imminent. When the U.S. economy tanks, even the 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.
Walmart Inc. (ticker: WMT)
It’s no surprise that discount retailer Walmart 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 Walmart. Analyst Arun Sundaram says Walmart has been struggling with excess inventory and cost inflation in recent quarters, but the company’s evolving business model, including initiatives in e-commerce, technology and automation, make it an excellent long-term investment. He projects stronger and more consistent earnings growth for Walmart in coming years. CFRA has a “buy” rating and $154 price target for WMT stock, which closed at $140.73 on Oct. 27.
S&P 500 outperformance: 5.1% (2020), 56.3% (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 stock will outperform peers over the long term thanks to its growing market share, strong balance sheet and track record of dividend hikes. Meyer says Abbott’s diversified portfolio of innovative products will help the company overcome falling COVID-19 testing demand and continue to generate impressive revenue growth. CFRA has a “buy” rating and $123 price target for ABT stock, which closed at $96.93 on Oct. 27.
S&P 500 outperformance: 9.8% (2020), 33.6% (2008)
Home Depot Inc. (HD)
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 a U.S. housing shortage has benefited Home Depot and triggered a surge in home remodeling projects as families opt to stay put amid a scarcity of attractively priced homes. Leon says supply chain disruptions remain a risk, but Home Depot is generating positive sales growth in all of its product departments. CFRA has a “buy” rating and $365 price target for HD stock, which closed at $291.06 on Oct. 27.
S&P 500 outperformance: 5.3% (2020), 23.9% (2008)
Synopsys Inc. (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 improving fundamentals and an attractive valuation. He says Synopsys has significant pricing power in its electronic design automation business and is a beneficiary of increasing semiconductor design complexity. Freeman projects 18% annual revenue growth over the next three years. CFRA has a “strong buy” rating and $514 price target for SNPS stock, which closed at $289.19 on Oct. 27.
S&P 500 outperformance: 70% (2020), 9.9% (2008)
Accenture PLC (ACN)
Accenture is a global information technology services firm. The company generates nearly half its revenue from North America, about a third from Europe and the remainder from other parts of the world. Accenture’s diversified consulting and services business made it recession resistant in the past and will likely continue to do so in the future. Analyst David Holt says Accenture has a resilient client base, a solid balance sheet and a long-term track record of above-average earnings growth, all of which makes it an excellent defensive investment. CFRA has a “buy” rating and $333 price target for ACN stock, which closed at $278.84 on Oct. 27.
S&P 500 outperformance: 7.8% (2020), 29.5% (2008)
T-Mobile US Inc. (TMUS)
Following its merger with Sprint, T-Mobile is now the second-largest U.S. wireless provider by subscriber market share. T-Mobile has generated consistent growth in a challenging industry, even during economic downturns. Analyst Keith Snyder says T-Mobile will continue to outgrow peers in the years ahead. Snyder says T-Mobile’s early 5G network rollout puts it at least a year ahead of AT&T Inc. (T) and Verizon Communications Inc. (VZ). He says T-Mobile has taken advantage of its 5G lead and has priced plans aggressively to gain market share in an intensely competitive market. CFRA has a “strong buy” rating and $170 price target for TMUS stock, which closed at $140.63 on Oct. 27.
S&P 500 outperformance: 55.7% (2020), 14.8% (2008)
Walt Disney Co. (DIS)
Walt Disney is one of the largest and most diversified media and entertainment companies in the world. That diversification has helped Disney’s business remain in high demand during a wide range of economic conditions, including a global pandemic. Even when Disney’s theme parks, cruise business, and movie and TV studios were shut down in 2020, Disney+ streaming subscriptions surged. Leon says Disney’s unrivaled content library coupled with its ability to bundle and cross-sell its Disney+, Hulu and ESPN+ services makes the company a streaming-video market leader. CFRA has a “buy” rating and $120 price target for DIS stock, which closed at $104.44 on Oct. 27.
S&P 500 outperformance: 9% (2020), 8.8% (2008)
7 stocks that outperform in a recession:
— Walmart Inc. (WMT)
— Abbott Laboratories (ABT)
— Home Depot Inc. (HD)
— Synopsys Inc. (SNPS)
— Accenture PLC (ACN)
— T-Mobile US Inc. (TMUS)
— Walt Disney Co. (DIS)
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Update 10/28/22: This story was previously published at an earlier date and has been updated with new information.