- As recession risks grow, healthcare, utilities, and insurance stocks tend to outperform.
- Defensive stocks with low volatility and strong dividends help weather downturns.
- In this piece, we highlight four recession-proof stocks with stability, income, and growth.
- Looking for more actionable trade ideas to navigate the current market volatility? Subscribe here to unlock access to ProPicks AI winners.
Recessionary winds have returned to the United States in recent weeks. Treasury Secretary Scott Bessent himself has warned that the U.S. economy may not escape it. Caution is advised in such cases, so it’s best to take him at his word and prepare for a potential downturn in the world’s leading economy.
What Stocks Are Worth Betting on in the Event of a Recession?
When markets begin to wobble, some companies still manage to maintain soundness and profitability. So, which stocks are best positioned to handle a period of uncertainty? There are certain characteristics and sectors that tend to outperform during economic downturns.
Among the main characteristics we need to monitor to identify defensive stocks are:
- Low beta: These stocks are usually less volatile than the market.
- Attractive dividend yield: Shareholders can earn a high dividend yield.
- Stable revenues: The company maintains steady demand even in times of economic downturn.
As for sectors, it’s best to focus on:
- Essential Consumption: Food, household goods, and low-cost essentials. Demand for these goods remains steady, even during recessions or economic uncertainty.
- Healthcare: Pharmaceuticals, health services, and companies offering health products and medical equipment. The healthcare sector is generally less affected by economic cycles.
- Utilities: Companies providing essential services such as electricity, gas, water, and telecommunications. Historically, the utility sector is more resilient during recessions, as these services are fundamental to daily life and are consumed regularly.
How to Identify Defensive Stocks
To identify the best stocks to buy ahead of a recession, one can rely on professional tools, such as InvestingPro’s Advanced Stock Screener, which filters stocks based on selected parameters.
Or, since we live in the age of Artificial Intelligence, we can also ask AI directly which stocks are the best to bet on during a recession.
This is made possible by InvestingPro’s latest tool, WarrenAI, the virtual financial assistant that answers all market-related questions by synthesizing a flood of data into a simple answer.
4 Best Stocks to Defend Against a Recession According to WarrenAI
So, let’s say we want to know what the best 4 recession-proof U.S. stocks are, with:
- Beta less than 1 over the past 5 years;
- Dividend yield greater than 5%;
- Revenue over $5 billion;
- Revenue CAGR (5 years) up at least 5%.
Source: InvestingPro
Just ask WarrenAI, and the answers come...
Source: InvestingPro
A few seconds of processing and here is the result:
The top 4 anti-recession stocks according to AI are:
- Pfizer (NYSE:PFE)
- Edison International (NYSE:EIX)
- Amcor (NYSE:AMCR)
- CNA Financial Corporation (NYSE:CNA)
But it doesn’t stop there. WarrenAI also explains why these stocks were chosen. So, let’s dive into the details.
1. Pfizer – Health and Stability in Difficult Times
- Beta (5 years): 0.54
- Dividend yield: 6.6%
- Revenue: $63.63 billion
- Revenue CAGR (5 years): 9.2%
The pharmaceutical sector is one of the most robust during tough economic times, and Pfizer is one of the best options for those looking for a defensive stock. With a beta of 0.54, it is less volatile than the market, and its dividend yield of 6.6% offers an attractive return for investors. Additionally, average revenue growth (+9.2% annually) shows the company’s ability to expand even in challenging environments.
Source: InvestingPro
2. CNA Financial Corporation – Insurance and High Yield
- Beta (5 years): 0.68
- Dividend yield: 7.8%
- Revenue: $14.27 billion
- Revenue CAGR (5 years): 5.8%
Insurance companies have one key characteristic: customers continue to pay insurance premiums even in times of crisis. CNA Financial combines a very high dividend yield (7.8%) with sustainable revenue growth (+5.8% annually). With a beta of 0.68, the stock is less susceptible to market fluctuations, making it a solid defensive choice.
Source: InvestingPro
3. Edison International – A Safe Haven in the Utility Sector
- Beta (5 years): 0.88
- Dividend yield: 5.6%
- Revenue: $17.60 billion
- Revenue CAGR (5 years): 7.3%
Companies that provide essential services such as electricity and gas tend to perform well even in severe recessions. Edison International, a leader in the utility sector, offers a dividend yield of 5.6% and solid revenue growth (+7.3% annually). Although it has a slightly higher beta than the other stocks on this list (0.88), it remains a stable option with less sensitivity to market fluctuations.
Source: InvestingPro
4. Amcor – Packaging (NYSE:PKG) That Withstands Crises
- Beta (5 years): 0.81
- Dividend yield: 5.2%
- Revenue: $13.54 billion
- Revenue CAGR (5 years): 7.6%
Amcor is one of the leading global companies in packaging and packaging materials manufacturing, a business that remains critical regardless of economic conditions. The company combines a dividend yield of 5.2% with steady revenue growth (+7.6% annually), maintaining stable demand for its products even in weaker economic cycles.
Source: InvestingPro
Why These Stocks in Particular?
In short, what do these four stocks have in common according to WarrenAI?
- They offer essential products and services, ensuring steady demand even in downturns.
- They exhibit low volatility, with betas below 1, reducing the risk of large price swings.
- They guarantee dividend yields above 5%, providing an income stream for investors.
- They show sustainable revenue growth, a sign that their business models are sound and expanding.
In addition, WarrenAI helped us diversify away from being too exposed to one sector.
Defensive stocks can also be affected by a recession, but historically, they tend to hold up better than the market as a whole. Therefore, building a balanced portfolio, after assessing one’s risk profile and conducting thorough research, containing solid companies and reliable dividends, can be a good strategy for dealing with an uncertain period.
Easier said than done? Certainly, but today, at least, we have one more ally.
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.