Introduction
With economic indicators like elevated interest rates, sluggish growth, and an inverted U.S. Treasury yield curve, many investors are bracing for a potential recession. History shows that when the economy tanks, even the most robust stocks can take a hit. However, some stocks have consistently defied the odds, outperforming the broader market during downturns. This article highlights seven recession-resistant stocks that have proven to be resilient during the last two U.S. recessions in 2008 and 2020.
Why Certain Stocks Thrive in a Recession
Recession-resistant stocks typically share common characteristics: they belong to sectors with steady demand, offer essential products or services, and often have a strong balance sheet. These companies have managed to thrive even in challenging economic environments, making them attractive options for defensive investors. Historical data from the 2008 financial crisis and the 2020 pandemic-induced recession shows that certain stocks not only survived but outperformed the S&P 500 index, providing a safe haven for investors.
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| Stock | Implied upside* |
| Walmart Inc. (ticker: WMT) | 9.2% |
| Abbott Laboratories (ABT) | 5.6% |
| Synopsys Inc. (SNPS) | 19.4% |
| Accenture PLC (ACN) | 17.6% |
| T-Mobile US Inc. (TMUS) | 6.9% |
| Netflix Inc. (NFLX) | 9.6% |
| NextEra Energy Inc. (NEE) | 10.2% |
1. Walmart Inc. (WMT)
Walmart is the quintessential recession-resistant stock. As the world’s largest retailer, Walmart benefits from its ability to offer essential goods at low prices. During tough economic times, consumers tend to tighten their belts, prioritizing necessities over luxuries. Walmart’s extensive network and competitive pricing make it the go-to retailer for budget-conscious shoppers.
During the 2008 recession, Walmart’s stock outperformed the S&P 500, returning 20% compared to the market’s sharp decline. Similarly, in 2020, Walmart’s shares rose by 23.3%, while the broader market struggled. This consistent performance underscores Walmart’s strength as a defensive investment. Looking ahead, Walmart’s focus on integrating technology and increasing automation in its supply chain is expected to drive further growth, making it a solid choice for recession-proof investing.
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2. Abbott Laboratories (ABT)
Abbott Laboratories is a diversified healthcare company that has demonstrated resilience in both the 2008 and 2020 recessions. The company’s broad range of healthcare products, from diagnostics to medical devices, ensures steady demand regardless of economic conditions. Healthcare, as an industry, is less cyclical than others, meaning people need medical care regardless of the economy’s state.
Abbott’s stock returned 28% in 2020, well above the market average, and managed to hold its ground during the 2008 downturn. One of Abbott’s strengths lies in its commitment to innovation and dividend growth, providing income investors with regular payouts even when the market is down. This combination of stability and growth potential makes Abbott a compelling choice for conservative investors looking for reliable performance during economic downturns.
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3. Synopsys Inc. (SNPS)
Synopsys is a leader in electronic design automation (EDA) and semiconductor intellectual property, two areas that have shown resilience even during economic slowdowns. The semiconductor industry, driven by technological advancement and increasing demand for chips, is a secular growth market. This constant demand ensures that companies like Synopsys remain stable even in challenging times.
In the 2020 recession, Synopsys’ stock soared by 86.2%, significantly outperforming the S&P 500. While it did face a decline during the 2008 recession, the company’s recurring revenue model, which accounted for 81% of its revenue in fiscal 2023, provides stability and downside protection. Synopsys’ position in a crucial industry and its strong financials make it a top pick for those seeking to hedge against economic downturns.
4. Accenture PLC (ACN)
Accenture is a global leader in IT services and consulting, with a diverse client base that spans various industries and geographies. This diversification helps insulate Accenture from the full brunt of economic downturns, as its services are often essential for companies navigating complex challenges during recessions.
During the 2020 recession, Accenture’s stock returned 26%, outperforming the broader market. Although it experienced a slight dip during the 2008 recession, the company’s strong fundamentals and growth profile make it a defensive player in the IT services space. Accenture’s ability to adapt to changing market conditions and its focus on high-demand areas like digital transformation and cloud services position it well for continued success in any economic environment.
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5. T-Mobile US Inc. (TMUS)
T-Mobile’s merger with Sprint has positioned it as the second-largest wireless provider in the U.S., giving it a strong foothold in a highly competitive industry. Despite the fierce competition, T-Mobile has consistently delivered growth, even during economic downturns. This resilience is attributed to the essential nature of wireless services, which are considered necessities in today’s connected world.
In the 2020 recession, T-Mobile’s stock surged by 71.9%, far outpacing the market. The company’s leadership in 5G technology and its aggressive market share gains make it a formidable player. T-Mobile’s focus on expanding its network and improving customer retention will likely continue to drive its success, making it a reliable investment in uncertain economic times.
6. Netflix Inc. (NFLX)
At first, it might be surprising that a company like Netflix, which depends on discretionary spending, would thrive during a recession. However, Netflix’s success in both the 2008 and 2020 recessions can be attributed to its value proposition. For as little as $6.99 per month, Netflix provides access to a vast library of content, making it an affordable entertainment option for cash-strapped consumers.
Netflix’s stock returned 67.1% in 2020 and 12.4% in 2008, demonstrating its ability to thrive even when consumers are cutting back. As the leader in the streaming industry, Netflix continues to expand its subscriber base and improve its content offerings, making it a solid pick for those looking for growth in a recession-resistant sector.
7. NextEra Energy Inc. (NEE)
NextEra Energy is a utility holding company that operates Florida Power & Light and NextEra Energy Resources. Utility stocks are often considered defensive investments because of their stable demand and predictable cash flows. Even during economic downturns, consumers continue to require basic utilities like electricity and water.
NextEra’s stock outperformed the S&P 500 in both the 2008 and 2020 recessions, returning 30.1% in 2020. The company’s focus on renewable energy and its favorable regulatory environment in Florida position it for continued growth. For investors seeking stability and steady dividends, NextEra Energy is a top choice.
Comparative Analysis of the Stocks
When comparing the performances of these seven stocks during the last two recessions, several key factors emerge. First, the industries represented—retail, healthcare, technology, utilities, and entertainment—are all sectors that provide essential products or services. Second, these companies have strong balance sheets and are leaders in their respective markets, allowing them to navigate downturns more effectively.
Each of these stocks offers something unique: Walmart’s discount retail model, Abbott’s diversified healthcare products, Synopsys’ recurring revenue, Accenture’s diversified services, T-Mobile’s wireless dominance, Netflix’s affordable entertainment, and NextEra’s utility stability. These factors contribute to their outperformance during recessions and make them attractive options for a defensive investment strategy.
Key Takeaways for Investors
Investing in recession-resistant stocks can provide a buffer during economic downturns. The seven stocks highlighted in this article have demonstrated their ability to outperform the market during past recessions, making them solid choices for a defensive portfolio. By focusing on industries with steady demand and companies with strong fundamentals, investors can build a portfolio that weathers economic storms. Diversification across these sectors can also help mitigate risk and ensure more stable returns.
Frequently Asked Questions (FAQs)
- What makes a stock recession-resistant? Recession-resistant stocks typically belong to sectors that provide essential goods or services, have strong balance sheets, and offer consistent dividends or revenue growth.
- Should I only invest in recession-resistant stocks? While recession-resistant stocks are a good addition to any portfolio, diversification across various sectors and asset classes is important for managing risk.
- How can I diversify my portfolio during a recession? Consider investing in a mix of defensive stocks, bonds, and other assets like gold or real estate to balance risk and reward.
- Are there risks associated with investing in these stocks? Yes, all investments carry risk. Even recession-resistant stocks can decline in value, though they tend to be less volatile during downturns.
- How often should I review my recession-resistant portfolio? It’s advisable to review your portfolio at least annually or when significant economic changes occur, ensuring it remains aligned with your investment goals.
