Consider these defensive stocks during a market downturn.
Big interest rate hikes by the Federal Reserve, economic pressure and persistently high inflation have investors worried that a U.S. recession could be in the offing within the next year or two. When the U.S. economy falters, even the best stocks get dragged down. However, there were still a handful of stocks that significantly outperformed the S&P 500 during the last two U.S. recessions in 2008 and 2020. These recession-resistant stocks can help you protect yourself when a bear market hits. Here are seven stock analysts recommended by CFRA Research that outperformed the S&P 500 in both 2008 and 2020.
Synopsys Inc. (ticker: SNPS)
Synopsys provides a platform on which engineers can design and test semiconductor chips and other software applications. The global semiconductor industry is likely to be a long-term growth market, so demand for chip testing and design services is constant — even in a downturn. Synopsys is the leader in electronic design automation (EDA) with a 31 percent market share, according to analyst John Freeman. The EDA business will benefit from increasingly complex chip designs, said Freeman, who expects Synopsys’ annual revenue to grow 17% over the next three years. CFRA has a “Strong Buy” rating on SNPS stock with a price target of $424, which closed at $275.99 on May 13.
Target Company (TGT)
It’s no surprise that discount retailer Target has done well in each of the past two recession years. Americans can’t live without groceries in hard times, but they can save money by buying the dip at Target. Analyst Arun Sundaram said investors should view Target as a long-term core holding given its ability to use its omnichannel retail capabilities to take market share from rivals. According to Sundaram, Target is delivering consistent results and is on track for mid-single-digit revenue and operating income growth and high-single-digit earnings growth. CFRA has a Buy rating and $288 price target on TGT stock, which closed at $219.73 on May 13.
Lowes Corporation (Low)
The Fed’s first typical response to a recession is to cut interest rates. Low mortgage rates coupled with a lack of recreational and leisure activities during social distancing have sparked a boom in the housing and home improvement market in 2020. Analyst Kenneth Leon said Lowe’s is one of the best ways to invest in consumer household spending, and Lowe’s management has done a great job over the past few years. Demand for do-it-yourself projects has faced inflation headwinds this year, but Leon said Lowe’s specialist division would do well. CFRA has a Buy rating and $275 price target on LOW stock, which closed at $194 on May 13.
Walmart Corporation (WMT)
Like Target, discounter Walmart has thrived during the downturn. According to Sundaram, investors don’t seem to fully understand the extent to which Walmart is investing in pursuing omnichannel sales opportunities, creating alternative revenue streams, improving its supply chain, and diversifying its product and geographic portfolio. The bulk of Walmart’s $16 billion to $17 billion investment in 2022 will be in e-commerce, technology and automation, he said. Walmart is also investing in growth opportunities like its subscription product Walmart+ and its advertising business Walmart Connect. CFRA has a Buy rating and $165 price target on WMT stock, which closed at $148.05 on May 13.
Abbott Laboratories (ABT)
Abbott Laboratories is a diversified healthcare products company. It’s understandable that many healthcare stocks outperformed during the 2020 pandemic, but Abbott stock actually outperformed by more in 2008. Analyst Paige Meyer said Abbott’s diversified business, growing 1.7% dividend and strong balance sheet will help the stock outperform its healthcare peers. Meyer said COVID-19 test sales are a short-term tailwind, while Abbott’s earnings growth and market share gains should provide long-term upside for its stock price. CFRA has a Buy rating and $142 price target on ABT stock, which closed at $109.88 on May 13.
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