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 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 investors play defense if the U.S. dips into a recession in 2023 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 major 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 Walmart is struggling to work through near-term inventory challenges, but Walmart’s high-margin “flywheel” businesses should continue to create value for investors in the long term. Sundaram says Walmart has successfully adapted its business model by integrating technology and automation, positioning the retailer to generate sustainable earnings growth in years ahead. CFRA has a “buy” rating and $160 price target for WMT stock, which closed at $140.54 on Jan. 20.
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 performed well during the pandemic in 2020, but Abbott’s shares actually outperformed by an even wider margin in 2008. Analyst Paige Meyer says Abbott’s highly innovative, diversified business will help it outperform health care peers in the long term. Meyer says a sharp decline in COVID-19 testing demand will likely drop Abbott’s revenue growth into negative territory in 2023, but Abbott’s product pipeline will put it back on a growth trajectory in 2024. CFRA has a “buy” rating and $110 price target for ABT stock, which closed at $112.82 on Jan. 20.
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 by cutting 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 the U.S. housing market cooled significantly in 2022 thanks to rising mortgage rates. However, home remodeling demand remains elevated, supply chain headwinds are easing, and commodity inflation has boosted average ticket prices heading into 2023. CFRA has a “buy” rating and $350 price target for HD stock, which closed at $315 on Jan. 20.
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’ business fundamentals are improving, and the stock is attractively valued. Freeman says Synopsys is the market leader in Electronic Design Automation, and its substantial pricing power supports margins. He projects 16% compound annual revenue growth over the next three years. CFRA has a “strong buy” rating and $503 price target for SNPS stock, which closed at $342.42 on Jan. 20.
S&P 500 outperformance: 70% (2020), 9.9% (2008)
Accenture PLC (ACN)
Accenture is a global information technologies 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 is a high-quality stock that holds up well during economic downturns; it also has a solid balance sheet and a long-term track record of peer-leading earnings growth. CFRA has a “strong buy” rating and $333 price target for ACN stock, which closed at $280.47 on Jan. 20.
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. T-Mobile has generated consistent growth in a challenging industry, even during economic downturns. Analyst Keith Snyder says T-Mobile will continue to outgrow its primary competitors and demonstrate its free cash flow growth potential. Snyder says T-Mobile’s 5G network has a significant lead over Verizon Communications Inc. (VZ) and AT&T Inc. (T). In a difficult environment, he projects T-Mobile’s revenue growth will accelerate from 0.2% in 2022 to 3.6% in 2023. CFRA has a “strong buy” rating and $175 price target for TMUS stock, which closed at $145.12 on Jan. 20.
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 likely got too aggressive in attempting to scale and expand Disney+, but returning CEO Bob Iger will get the company on a more responsible financial trajectory. CFRA has a “buy” rating and $110 price target for DIS stock, which closed at $103.48 on Jan. 20.
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 01/23/23: This story was previously published at an earlier date and has been updated with new information.