Consider these defensive stocks during a market downturn.
Aggressive Federal Reserve interest rate hikes and persistent inflation have many investors concerned a U.S. recession may be imminent. When the U.S. economy tanks, even high-quality stocks get dragged down with it. But 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 resilient stocks might help investors play defense if the U.S. dips into a recession in 2023. 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 is working to manage inventory imbalances and cost inflation, but its long-term outlook is positive as it constructs a high-margin “flywheel” ecosystem, which includes its Walmart Connect advertising business and its Walmart+ subscription service. Sundaram says investments in e-commerce, automation and technology will help Walmart outgrow competitors. CFRA has a “buy” rating and $160 price target for WMT stock, which closed at $147.33 on Feb. 21.
S&P 500 outperformance: 5.1% (2020), 56.3% (2008)
Abbott Laboratories (ABT)
Abbott Laboratories is a diversified health care products company. While many health care stocks did well in 2020 due to the pandemic, Abbott’s shares outperformed by an even wider margin in 2008. Analyst Paige Meyer says Abbott’s diversified health care business, its strong balance sheet and its growing dividend will help the stock outperform peers in the long term. Meyer says Abbott revenue will drop 9% in 2023 as COVID-19 testing sales fall, but she projects a return to revenue growth in 2024. CFRA has a “buy” rating and $121 price target for ABT stock, which closed at $103.65 on Feb 21.
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 professional remodeling project backlogs remain strong and Home Depot should benefit from American families remaining in their current homes due to a shortage of affordable housing. Leon says commodity inflation has helped boost Home Depot’s average ticket price, or how much a typical customer spends per visit. CFRA has a “buy” rating and $350 price target for HD stock, which closed at $295.50 on Feb. 21.
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’ fundamentals are improving and its valuation is attractive. Chip design complexity is constantly increasing, which should serve as a long-term demand tailwind for Synopsys. Freeman thinks the company can expand its operating margins to greater than 40% by fiscal 2025 from 30.5% in fiscal 2021. CFRA has a “strong buy” rating and $503 price target for SNPS stock, which closed at $352.35 on Feb. 21.
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 is a defensive investment in a slowing economy. Holt says the company has a loyal customer base, a solid balance sheet and a history of above-average earnings growth. CFRA has a “strong buy” rating and $333 price target for ACN stock, which closed at $269.15 on Feb. 21.
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 peers, and he projects revenue growth will accelerate from 2.2% in 2023 to 4.2% in 2024, thanks to the rollout of next-generation mobile devices and the company’s pricing strategy. Snyder is bullish on T-Mobile’s free cash flow growth potential and churn, and he says aggressive pricing has allowed it to gain market share. CFRA has a “strong buy” rating and $175 price target for TMUS stock, which closed at $147.09 on Feb. 21.
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 cost-cutting initiative and refined strategy will help the company be more efficient, and Disney’s park segment has recovered impressively following the pandemic. CFRA has a “buy” rating and $135 price target for DIS stock, which closed at $102.09 on Feb. 21.
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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7 Stocks That Outperform in a Recession originally appeared on usnews.com
Update 02/22/23: This story was published at an earlier date and has been updated with new information.