what stocks perform well in a recession guide

What Stocks Perform Well in a Recession

This article answers the central question: what stocks perform well in a recession — and why. It defines what “perform well” means for equities, reviews historical evidence from notable downturns, lists sectors and company characteristics linked to resilience, presents short case studies, and describes practical strategies and metrics investors use to research recession-resistant names. The goal is to provide clear, beginner-friendly guidance and neutral, verifiable analysis (not personalized investment advice). As of June 2024, according to mainstream investment research outlets and market observers, certain sectors and high-quality companies have repeatedly shown relative strength in downturns; this guide explains the patterns and how to evaluate them.

Definition and scope

A clear definition helps avoid confusion when asking what stocks perform well in a recession. Below are the terms and scope used in this guide.

• Recession: a period of falling economic activity across the economy, typically defined by negative GDP growth for two consecutive quarters or official declarations by recognized authorities. U.S. recessions often referenced here include the Global Financial Crisis (2008–2009) and the COVID-related contraction (2020). Other downturns and shorter pullbacks are noted where relevant.

• “Perform well in a recession”: for equities this usually means one or more of the following relative outcomes during an identified recessionary window:

  • Smaller price decline (lower drawdown) than the broad market benchmark (commonly the S&P 500).
  • Faster recovery after the trough (higher relative total return over the recovery period).
  • Stable or growing dividend payments and earnings relative to peers.
  • Lower realized volatility and downside capture (the stock or sector falls less when the market falls).

• Measurement choices: performance can be measured by total return vs. S&P 500, peak-to-trough drawdown, downside capture ratio, volatility (standard deviation, beta), dividend stability and payout coverage, and multi-year cumulative returns. Different analyses use different windows (e.g., recession start to trough, trough to 12 months after, or full cycle). Readers should note which window a study uses before comparing results.

• Scope: this guide focuses on U.S. equities and sector- and company-level behavior in U.S.-led recessions. Many principles apply internationally, but legal, market-structure, and fiscal/monetary responses vary across countries.

Historical evidence and empirical patterns

When people ask what stocks perform well in a recession they are often looking for patterns that repeat across downturns. Analysts from outlets such as Morningstar, Investopedia, U.S. News, Investor’s Business Daily, Motley Fool, NerdWallet, and others have studied past recessions and published lists and sector breakdowns. Broad empirical observations include:

• Defensive sectors—consumer staples, healthcare, utilities—tend to show lower peak-to-trough declines during many recessions because demand for necessities is relatively inelastic.

• Discount retailers and value-oriented consumer firms have historically done better than premium discretionary retail in some downturns (consumers trade down toward lower-priced essentials).

• Some large-cap technology companies with strong balance sheets, recurring revenue or critical infrastructure roles have occasionally outperformed, but tech performance is inconsistent across recessions and depends on the recession’s drivers.

• Defense and government-contracting firms often show resilience due to long-term government spending commitments and contract structures.

• Analysts commonly use sector attribution, downside-capture statistics, and case-study lists to identify repeat outperformers. For instance, U.S. News and Investor’s Business Daily have published lists highlighting stocks that historically showed smaller declines or stronger rebounds in U.S. recessions. Morningstar has discussed the role of quality and cash-flow metrics when preparing portfolios for recessionary risk.

• Important caveat: results vary by recession type. The 2008 crisis was financial-system driven; 2020’s recession was pandemic-driven with a sharp drop and rapid monetary/fiscal response. A stock that outperformed in 2008 may not have outperformed in 2020.

Sectors that typically fare better in recessions

Sector-level patterns matter because many stocks share exposure to the same economic drivers. Below are defensive sectors commonly cited when asking what stocks perform well in a recession, with the economic logic and representative company examples.

Consumer staples and discount retail

Why: Essentials like food, basic household goods and low-cost household brands see steady demand even when consumer spending contracts. Consumers may shift from higher-priced brands or restaurants toward cheaper grocery options, supporting supermarket chains and discount stores.

Representative examples and rationale:

• Large discount and supermarket chains that offer low prices and broad distribution benefit from share gains as consumers trade down.
• Packaged-goods manufacturers of staple categories (food, cleaning, personal care) have predictable sales and benefit from brand and shelf-placement advantages.

Example names used in past analyses: Walmart and Kroger (retail), and consumer packaged goods names such as Clorox and J.M. Smucker. The common pattern is stable revenues and steady cash flow during recessions, plus relative pricing power in essential categories.

Healthcare and medical supplies

Why: Demand for healthcare services, pharmaceuticals and many medical supplies is relatively non-discretionary. Patients continue to require medications, basic procedures and medically necessary supplies regardless of economic cycles.

Representative examples and rationale:

• Large diversified healthcare manufacturers and device suppliers often show defensive earnings and stable cash flow. Their product demand is less tied to discretionary consumer spending and more to demographic and clinical needs.

Example names used in analyses: Abbott Laboratories and Baxter. These firms produce essential diagnostics, medical devices and consumables that tend to see steady demand even during downturns.

Utilities and regulated/essential services

Why: Utilities deliver electricity, water and gas—services with inelastic demand and regulated prices in many jurisdictions. That creates predictable cash flows and often steady dividend yields.

Representative examples and rationale:

• Utility companies typically have long-term regulated rate structures, which support revenue predictability. Investors often accept lower growth in exchange for dividend reliability, making utilities a defensive allocation when markets fall.

Example name: NextEra Energy is commonly mentioned as a large-cap utility with diversified generation assets and a history of stable dividend distributions.

Defense and government-contractor exposure

Why: Defense spending and many government contracts are less sensitive to the economic cycle. Long-duration contracts and appropriations provide revenue visibility.

Representative examples and rationale:

• Companies with significant government-contract revenue can have stable backlog and cash flow during downturns. Defense contractors also often have strong balance sheets and predictable free cash flow.

Example: Lockheed Martin is frequently cited for its countercyclical revenue profile due to a large share of defense contracts.

Select “quality” tech / semiconductors / services

Why and nuance: Technology is not uniformly defensive. Some large-cap tech firms with strong recurring revenue, dominant market positions, or critical enterprise infrastructure roles can outperform because customers prioritize mission-critical software, cloud services, or semiconductors despite a slowdown. However, other tech segments that depend on discretionary consumer spending or capital spending can fall sharply.

Representative examples and rationale:

• Specialized software vendors and infrastructure providers with subscription models and high gross margins can be resilient. Similarly, some semiconductor firms that supply components for essential devices or industrial applications may show relative strength.

Example names that have shown resilience in selected downturns: Synopsys and Analog Devices. Analysts caution that tech performance is cycle-dependent and that quality and balance-sheet strength matter more than sector label alone.

Common company characteristics of recession-resilient stocks

When evaluating what stocks perform well in a recession, many studies converge on a set of company-level traits that correlate with resilience. These characteristics help screen and prioritize candidates.

• Stable, non-discretionary revenue: A high share of sales from essential goods or services reduces revenue sensitivity to income and employment shocks.

• Pricing power and strong brands: Firms that can sustain margins by maintaining prices (or offset higher costs) protect profitability.

• Recurring revenue and subscription models: Predictable cash flow from subscriptions or long-term contracts improves visibility and reduces churn risk.

• Low operating leverage: Businesses with cost structures that adjust more flexibly to revenue declines suffer less margin erosion.

• Strong balance sheet and liquidity: Low net leverage, high cash balances, and good access to capital markets reduce refinancing and solvency risk under stress.

• Positive free cash flow and conservative payout coverage: Sustainable dividends with reasonable payout ratios are more likely to be maintained through downturns.

• Low beta and lower correlation to broad cyclical indicators: Lower market sensitivity helps limit downside during sharp sell-offs.

• Diversified revenue mix and international exposure: Geographic or customer diversification can reduce dependence on any single economic region.

These traits are not mutually exclusive. The most resilient stocks typically combine several of these features rather than relying on a single attribute.

Notable stocks and case studies

Below are concise case-study summaries that illustrate why specific names are often included in discussions of what stocks perform well in a recession. Each case focuses on the company’s demand dynamics, financial strengths, and why analysts have labeled it resilient.

Walmart (WMT) — discount retail example of recurring outperformance

Why resilient: Walmart operates a large, low-cost retail network that benefits during consumer downgrades. Its broad assortment of essential goods, scale-driven cost advantages and growing grocery and e-commerce capabilities support steady sales. Historically, discount retailers have held up better than premium discretionary retailers during downturns because consumers prioritize value.

Financial profile highlights: large-cap scale, diversified revenue streams across stores and e-commerce, and strong operating cash flow that helps fund investments and dividends. Analysts and published lists often cite Walmart as a recession-resilient retail exposure.

Abbott Laboratories (ABT) and Baxter (BAX) — healthcare resilience

Why resilient: Abbott and Baxter operate in diagnostics, medical devices and consumables—areas with steady clinical demand. Diagnostic testing, chronic-care products and consumable medical supplies are less cyclical.

Financial profile highlights: recurring product demand, global distribution networks, and substantial free cash flow. These attributes support more predictable earnings and dividend policies in downturns.

J.M. Smucker (SJM) and Clorox (CLX) — packaged goods / staples

Why resilient: J.M. Smucker and Clorox sell packaged foods and household essentials that maintain demand under weak economic conditions. Pantry-stocking behavior during stress periods can temporarily boost sales, and strong brand positions support shelf placement in stores.

Financial profile highlights: steady gross margins, pricing power in core categories, and historically stable dividend programs.

Synopsys (SNPS) and Analog Devices (ADI) — specialized tech and semiconductors

Why resilient (in select cycles): Certain specialized tech firms and semiconductor companies that supply mission-critical tools, design IP, or niche components used in essential industrial or communications infrastructure can maintain revenue even when overall tech demand softens.

Financial profile highlights: recurring licensing models (in the case of EDA and IP suppliers), high gross margins, and strong balance sheets. These companies have sometimes outperformed when their end-markets were less exposed to consumer discretionary spending.

Lockheed Martin (LMT) — defense contractor

Why resilient: Lockheed’s large backlog of government contracts and high share of defense-revenue makes its cash flows less cyclical. Long-duration contracts and periodic appropriations provide revenue visibility.

Financial profile highlights: predictable contract revenue, robust margins on certain programs, and dividend history bolstered by free cash flow generation.

NextEra Energy (NEE) — utility/energy example

Why resilient: NextEra and similar utilities benefit from regulated or quasi-regulated revenue streams and often pay reliable dividends. Their large-scale generation and transmission assets provide predictable utilization and revenue.

Financial profile highlights: steady cash flow, investment-grade balance-sheet attributes in many utility firms, and dividend-focused appeal for income-oriented investors.

Each case-study example above explains why the firm’s business model or financial profile supports resilience. Readers should verify current financial metrics and business exposures from company filings and independent data providers before drawing conclusions.

Investment strategies for recessionary periods

Knowing what stocks perform well in a recession is only part of preparedness. Below are practical strategies investors commonly use to position portfolios for recession risk while maintaining long-term objectives.

• Defensive sector allocation: Increase exposure to consumer staples, healthcare, and utilities through diversified ETFs or selected stocks. This reduces single-stock risk while gaining sector-level defense.

• Quality and dividend tilt: Favor firms with strong free cash flow, low leverage and sustainable dividends. Quality screens often rely on return-on-equity, operating margin stability and balance-sheet strength.

• Cash and high-quality bonds: Holding cash or investment-grade bonds increases liquidity and provides funds to buy during dislocations. Short-duration government or high-quality corporate bonds reduce interest-rate sensitivity.

• Sector ETFs for diversification: Sector ETFs can offer immediate, low-cost exposure to defensive sectors. Check ETF holdings and expense ratios before allocating.

• Dollar-cost averaging: Gradual purchasing over time reduces timing risk and helps accumulate quality names as valuations fluctuate.

• Rebalancing rules: Pre-defined rebalancing discipline (e.g., rebalance to target allocations when deviations exceed thresholds) systematically captures gains and enforces buying defensive or attractive assets during market stress.

• Tactical vs strategic perspectives: Maintain a strategic asset allocation aligned with long-term goals. Tactical shifts toward defense can reduce near-term volatility but risk locking in opportunity costs if the downturn is mild or short.

• Stress-tested positions: Consider scenario analyses for key holdings (e.g., a 30% market drop, recession of X months) and assess how a position’s earnings, cash flow and dividend would fare.

These strategies should be considered in the context of your time horizon, risk tolerance and financial plan. This guide is informational and not a substitute for professional financial advice.

Metrics and methods for researching recession-resistant stocks

To answer what stocks perform well in a recession for portfolio inclusion, use the following quantitative and qualitative metrics:

• Revenue stability: Measure historical revenue variance and the share of non-discretionary categories. A higher share implies lower sensitivity to cyclical spending.

• Margin stability: Track gross margin and operating margin variability across economic cycles. Stable margins often indicate pricing power and cost resilience.

• Free cash flow yield: Free cash flow as a percent of market capitalization shows the firm’s capacity to fund dividends and investments.

• Debt levels and interest coverage: Debt-to-EBITDA and interest coverage ratios indicate the firm’s ability to meet obligations during revenue stress.

• Dividend yield and payout ratio: Check dividend sustainability by comparing payout ratio to free cash flow and earnings stability.

• Downside capture ratio and historical drawdown: Use back-tested downside-capture metrics against a benchmark (e.g., S&P 500) over past recessions.

• Beta and correlation analysis: Low beta and lower correlation to cyclical indicators reduce portfolio volatility in downturns.

• Customer concentration and contract terms: High customer concentration increases risk. Long-term contracts and recurring revenue improve visibility.

• Management commentary and capital-allocation track record: Management’s behavior in prior downturns (cost control, dividend treatment, buybacks) is informative.

• Scenario and sensitivity analysis: Model earnings, cash flow and leverage under stress scenarios (e.g., revenue decline of 15–40% depending on business model) to test resilience.

Combine quantitative screens with qualitative judgment to form a more complete view of a candidate’s recession resilience.

Risks, caveats, and why “recession-proof” is a misnomer

Important limitations when asking what stocks perform well in a recession:

• No stock is truly recession-proof: Every business faces some form of demand, credit or operational risk. Labeling a name “recession-proof” can create false security.

• Recessions differ in cause and severity: A financial-system-led recession may hit banks and cyclicals hardest; a pandemic-driven shock may affect travel and entertainment while boosting certain healthcare and consumer staples categories. Sector performance varies with the shock’s nature.

• Valuation risk: Defensive stocks can become richly priced as investors buy safety ahead of a downturn. Paying too high a valuation reduces expected future returns even if the business remains resilient.

• Overconcentration risk: Overweighting a small set of defensive names increases idiosyncratic risk (e.g., regulatory shocks, category disruption).

• Dividend risk during severe stress: Even firms with long dividend histories may cut payouts if cash flow deteriorates significantly.

• Business-model changes and competition: Market leadership and cash-flow profiles can change over time. Past resilience is not a guaranteed predictor of future performance.

Given these caveats, maintain diversification, use valuation-aware selection, and apply scenario testing rather than assuming safety based solely on sector labels or historical lists.

Practical examples of past analyses and headline lists

Major financial outlets publish headline lists and analyses that attempt to answer what stocks perform well in a recession. Common features of these lists:

• Overlap on sectors: Most publications highlight consumer staples, healthcare, utilities, and select defense/government contractors as repeatedly defensive.

• Divergence on specific tickers: While sector themes are similar, specific stock recommendations vary based on each outlet’s methodology, time horizon, and valuation considerations.

• Use of historical windows: Some lists focus on the 2008 crisis, others on the 2020 shock, and some combine multiple cycles to identify repeat performers. Methodological differences (e.g., total return vs. drawdown focus) explain disparate conclusions.

Representative outlets and the types of content they publish (titles paraphrased): U.S. News’ compilation of stocks that historically outperformed in recessions; Investor’s Business Daily lists of S&P 500 names with strong recession records; Motley Fool and NerdWallet articles explaining attributes of recession-resistant stocks; Morningstar guidance on high-quality income assets during recessions; Investopedia industry-level analysis of which industries may thrive.

As of June 2024, published lists from these outlets continue to emphasize the same defensive sectors but also stress valuation and income stability as primary selection filters.

Further reading and data sources

For deeper research into what stocks perform well in a recession, consult primary sources and data providers including: company quarterly and annual filings (10-Q, 10-K), sector and company coverage from major investment research firms, reputable financial media analyses that present methodology and windows used, and historical market-risk analytics from data vendors that provide downside-capture and drawdown metrics. Use ETF prospectuses to evaluate sector ETF holdings and fees. When reviewing third-party lists, always confirm the measurement window and whether the performance cited is price-only or total-return inclusive.

Helpful categories of primary materials:

• Company SEC filings for up-to-date revenue and cash-flow details.
• ETF fund prospectuses for sector exposure and holdings.
• Historical total-return data from major market-data providers.
• Credit metrics and ratings from financial-data aggregators.

References

Below are the core public research outlets and summaries that inform the themes in this guide. Titles are provided for verification; readers should consult the full articles and data sources for original analyses and the specific windows used.

• U.S. News Money: “7 Stocks That Outperform in a Recession” — reported analyses and lists of historically resilient names. (Reported as of mid-2024 in editorial summaries.)
• The Motley Fool: “Recession-Proof Stocks: What You Need to Look For” — guidance on attributes and example stocks.
• Investor’s Business Daily: “S&P 500 Stocks You'll Wish You Owned When The Recession Starts” — list-based approach showing names with stronger historical recession performance.
• NerdWallet: “Looking for Recession-Proof Stocks? Find the Outperformers” — consumer-facing guidance on defensive stock features.
• Nasdaq editorial (Motley Fool content): “Recession-Resistant Stocks” — sector-focused discussion.
• Morningstar: “Best Investments to Own During a Recession” — portfolio and asset-allocation perspective emphasizing quality and dividend stability.
• Investopedia: “Industries That Can Thrive During Recessions” — industry-level analysis and economic logic.
• Kubera blog: “What Are the Best Recession Proof Stocks to Buy?” — curated perspectives on defensive names.
• InvestAsian: “Best Investments in a Recession: Are You Prepared?” — regional viewpoint on assets and strategies.

As of June 2024, these outlets had published analysis and lists that reinforce the sector and quality themes covered above. Readers should verify specific performance numbers and the timeframes used before making decisions.

Final notes and next steps

If your objective is to prepare a portfolio for recession risk, start by defining your time horizon and liquidity needs. Use the screening metrics above (revenue stability, margin consistency, free cash flow, leverage and downside-capture history) to identify candidate stocks and sector ETFs. Maintain diversification and valuation discipline, and adopt a rebalancing rule to act systematically rather than emotionally during market stress.

Explore Bitget’s educational resources and market tools to stay informed about macro trends and liquidity considerations. For Web3-related custody or cross-asset research tools, consider Bitget Wallet when managing crypto exposures alongside equity allocations. These tools complement traditional equity research but do not replace company-level fundamental analysis.

Further exploration: review company filings for current financial metrics, examine ETF holdings for sector exposure, and consult the referenced mainstream analyses for methodologies and historical windows used when assessing what stocks perform well in a recession.

Note: This article is informational and does not constitute investment advice. Confirm current data and consult a licensed advisor for personalized guidance.