7 Stocks That Outperform in a Recession

Elevated interest rates, lingering inflation and an inverted U.S. Treasury yield curve have some investors concerned a recession may be coming. When the 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 2024.

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Here are seven stocks CFRA Research analysts recommend that outperformed the S&P 500 in both 2008 and 2020:

Stock Implied upside from May 21 close
Walmart Inc. (ticker: WMT) -0.2%
Abbott Laboratories (ABT) 22.4%
Synopsys Inc. (SNPS) 9.2%
Accenture PLC (ACN) 27.5%
T-Mobile US Inc. (TMUS) 12.6%
Netflix Inc. (NFLX) -1.6%
NextEra Energy Inc. (NEE) 2.7%

Walmart Inc. (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 moved on from its inventory imbalances and ballooning cost issues and is positioned to grow its operating income faster than its revenue in the next several years. As a result, Sundaram says the company’s earnings growth will help it maintain a premium valuation relative to retail peers. CFRA has a “buy” rating and $65 price target for WMT stock, which closed at $65.15 on May 21.

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 expanding market share, innovative and diversified product portfolio, strong balance sheet and consistent dividend growth will help it outperform both its industry peers and the broad market in the long term. COVID-19 product sales have slumped, but Meyer projects Abbott will return to positive revenue growth in 2024. CFRA has a “buy” rating and $126 price target for ABT stock, which closed at $102.96 on May 21.

S&P 500 outperformance: 9.8% (2020), 33.6% (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 a secular growth market, so demand for chip testing and design services is constant — even during an economic downturn. Analyst Brooks Idlet says Synopsys has an attractive long-term revenue and earnings growth trajectory. Idlet says the electronic design automation business is highly correlated to customer research and development, insulating Synopsys from some of the demand cyclicality in the semiconductor industry. CFRA has a “buy” rating and $624 price target for SNPS stock, which closed at $571.53 on May 21.

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. Idlet says Accenture’s impressive business fundamentals justify its lofty valuation, and the company’s solid balance sheet, diverse customer base and strong earnings growth make the stock a great defensive investment. CFRA has a “buy” rating and $387 price target for ACN stock, which closed at $303.64 on May 21.

S&P 500 outperformance: 7.8% (2020), 29.5% (2008)

T-Mobile US Inc. (TMUS)

T-Mobile is now the third-largest U.S. wireless provider by total revenue. T-Mobile has generated consistent growth in a challenging industry, even during economic downturns. Analyst Keith Snyder says T-Mobile will continue to gain market share from AT&T Inc. (T) and Verizon Communications Inc. (VZ). Snyder says the telecom market will remain fiercely competitive, but he says T-Mobile is generating impressive cash flow growth in the difficult environment. In addition, he says T-Mobile’s 5G network maintains a roughly one-year lead over top competing networks. CFRA has a “strong buy” rating and $185 price target for TMUS stock, which closed at $164.36 on May 21.

S&P 500 outperformance: 55.7% (2020), 14.8% (2008)

Netflix Inc. (NFLX)

At first glance, it may seem strange that video streaming service Netflix, which relies on discretionary spending, would perform so well during times of economic difficulty. Netflix’s strength in 2008 and 2020 may have to do with Americans cutting back on pricey entertainment options during financial hardship. Netflix provides access to thousands of shows and movies for as low as $6.99 per month. Analyst Kenneth Leon says Netflix is a streaming industry leader in growing revenue streams, such as advertising, ad-pay plans and paid share members. CFRA has a “buy” rating and $640 price target for NFLX stock, which closed at $650.61 on May 21.

S&P 500 outperformance: 50.9% (2020), 50.8% (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 has an attractive valuation that will become even more appealing as subsidiary NEER’s financing difficulties subside. CFRA has a “strong buy” rating and $79 price target for NEE stock, which closed at $76.95 on May 21.

S&P 500 outperformance: 12.5% (2020), 14.7% (2008)

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7 Stocks That Outperform in a Recession originally appeared on usnews.com

Update 05/22/24: This story was previously published at an earlier date and has been updated with new information.

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