7 Stocks That Perform Well During A Recession
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Aggressive Federal Reserve interest rate hikes, persistent inflation and regional bank failures 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 could help investors play defense if the U.S. dips into a recession in 2023.
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 successfully navigated its inventory and cost challenges and is now on the cusp of a multiyear margin expansion period. Sundaram is bullish on Walmart's \"flywheel\" businesses, such as advertising, health care, financial services and its Walmart+ subscription service. He projects 3.5% revenue growth in fiscal 2024. CFRA has a \"buy\" rating and $163 price target for WMT stock, which closed at $140.90 on March 20.
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 innovative, highly diversified business, its strong balance sheet and its consistent dividend growth will help the company gain market share and outperform peers. COVID-19 testing sales will be a growth headwind in 2023, but Meyer projects a return to 5.3% revenue growth in fiscal 2024. CFRA has a \"buy\" rating and $121 price target for ABT stock, which closed at $97.87 on March 20.
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's loyal customer base and solid balance sheet make it an excellent defensive investment during periods of economic uncertainty. He says the company will continue to gain market share. CFRA has a \"strong buy\" rating and $333 price target for ACN stock, which closed at $252.55 on March 20.
Inflation may have peaked in 2022, but it remains well above the Federal Reserve's long-term target of 2%, with the consumer price index rising 0.4% on a monthly basis in February and 6% over the last year. Bank of America recently compiled a pro-inflation screen to identify stocks that have historically demonstrated a strong positive correlation with inflation. While other companies battle rising costs, inflation may actually help these stocks outperform.
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.
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.
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.
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.
Many of Wall Street's top minds expect the U.S. to enter a recession at some point in 2023. For investors, this means seeking out the best recession-proof stocks to help protect their portfolios during a time of economic uncertainty.
But what is a recession The traditional definition is two consecutive quarters of negative growth. Based on that, the U.S. is not currently in a recession, with fourth-quarter gross domestic product (GDP) data showing the economy grew at a 2.9% annualized rate in the final three months of 2022. This followed growth of 3.2% in Q3.
The U.S. might not be in a recession at the moment, but expectations are high that one could hit in 2023. The Wall Street Journal's most recent quarterly survey of economists (opens in new tab) suggests there is a 61% chance of a U.S. recession within the next year. While this is 2 percentage points lower than the previous quarter, it's still historically high. Kiplinger, for its part, has the odds of a recession in 2023 at about 60% at the moment.
Regarding \"sin stocks,\" Philip Morris International (PM (opens in new tab), $105.39) did just fine during the Great Recession. In fact, that's when its stock started trading: Altria (MO (opens in new tab)) spun off its international business on March 27, 2008. As a result, shareholders got one new share of PM for every share of MO they owned. PM and most other major cigarette companies benefited from increased sales during the Great Recession.
ORLY has done a good job balancing its revenues between do-it-yourself (DIY) customers and professional shops; the business model has held ORLY in good stead for decades. Through the first nine months of 2022, O'Reilly's revenues were split 55% to DIY customers and 45% to owners of automotive repair shops. And what makes ORLY one of the best recession-proof stocks is that sales to DIY customers may increase during an economic slowdown as people save money by doing their own repairs.
Over the past decade, O'Reilly's stock has an annualized total return of 24%, nearly double the entire U.S. market. As a result, ORLY should hold its own and earn its place among stocks to invest in during a recession.
Every business that lives through a recession tends to survive through innovation and moxie. In the case of McDonald's (MCD (opens in new tab), $266.27), which is so big that it probably doesn't fear much, we're likely to see a few new tricks out of a company that has always been well ahead of the curve.
\"In a recession, people eat out less and at home more frequently. And when they eat out, they eat at cheaper places,\" Slate contributor Daniel Gross wrote in August (opens in new tab)2009. \"McDonald's is so cheap, efficient, pervasive and convenient that it was a viable alternative to casual restaurants like Ruby Tuesday and to cooking at home. Investors, like diners, angled toward McDonald's and away from Ruby Tuesday during the recession.\"
Back in 2008, Slate magazine wondered why Walmart (WMT, $144.67) was thriving while the economy was tanking. The answer: Consumers could no longer afford to trade up; they were forced to survive by trading down. And this is what makes WMT one of the best recession-proof stocks.
Evercore analyst Kirk Materne said at the time of Credit Karma's announcement and subsequent correction in INTU stock that he felt the selloff was an overreaction to the news. The analyst has an Outperform (Buy) rating and a $505 target price on Intuit, 20% higher than where it's currently trading.
INTU isn't the cheapest option among recession-proof stocks. It currently trades at 30.7 times forward earnings. While that's high relative to other fintech stocks and the broader market, it's less than the company's five-year average of 37.5.
While COVID-related deaths have slowed, Service Corporation International (SCI (opens in new tab), $74.25), an owner of more than 1,900 funeral homes and cemeteries in 44 states and eight Canadian provinces, should be able to navigate any potential recession that surfaces in 2023.
In June 2019, as recession talk was heating up, Bank of America analyst Joanna Gajuk suggested that companies like Service Corp only suffered a \"slight pullback\" in its business during the Great Recession. The reasoning Roughly 75% of funeral home clients who pay for funeral arrangements ahead of time pay a lump sum. In addition, 40% to 50% pay ahead of time for cemetery plots, also in one lump sum. 59ce067264