News

Key Points

• Walmart's stock has consistently outperformed during recessions.

• Netflix is another stock with a history of seeing solid gains in recessionary environments.

• Philip Morris International is well positioned to continue to see solid growth during a recession.

The world's largest predictions market, Polymarket, has been putting the odds of recession in the U.S. this year at around 30% for much of this month. With recession fears growing, let's look at three stocks that could perform well in this environment.

Walmart

Historically, one of the best stocks to own during a recession has been retailer Walmart (NASDAQ: WMT). The stock has nicely outperformed the market during the last three big recessions, including the COVID-19 crash of 2020, where it was up 21% that year; the Great Recession in 2007 and 2008, where its stock rose 3% and 18%, respectively; and the bursting of the dot-com bubble in 2001, where it climbed 8%.

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Notably, the company is perhaps better positioned today to withstand a recession than in the past. The reason for this is that the retailer has transformed itself to become the world's largest grocer, with about 60% of its sales now coming from this category. Meanwhile, as the low-cost leader, consumers tend to flock to it during these periods.

The company has already been drawing in more affluent customers to its stores over the past few years, as it has leaned not only into low prices but also into convenience by offering free same-store delivery through its Walmart+ subscription plan. That should set the company up to see solid growth even if the U.S. is hit by a recession this year.

Netflix

When a recession hits, people often turn to cheaper forms of entertainment, which helps benefit Netflix (NASDAQ: NFLX). During the Great Recession, the company's stock rose 3% in 2007 and 12% in 2008, before surging 84% in 2009. The stock also soared 67% in 2020, the year of the COVID-19 recession.

Meanwhile, losing out on its bid for Warner Bros Discovery could be the best thing for the company in the event of a recession. First, it keeps its balance sheet in better shape, and second, it doesn't add theatrical releases, which can struggle during these periods. At the same time, its ad business is so nascent that it should continue to grow even during a weaker economic period.

Overall, Netflix should continue to see solid revenue growth even during a recession. Its addition of lower-priced ad-supported tiers positions it well to add subscribers during this period, while it should still have solid pricing power given its relative value to other forms of entertainment.

Philip Morris International

While its stock was spun off in 2008 from Altria, thus missing two of the big recent recessions, Philip Morris International (NYSE: PM) is the type of stock that should outperform during these periods. Cigarettes are addictive, and thus, they tend to be economically insensitive. Meanwhile, the company doesn't sell cigarettes in the U.S., which is a market that has seen pretty big volume declines over the past several years. International volumes have held up much better, and the tobacco industry as a whole continues to see strong pricing power.

At the same time, Philip Morris' smoke-free portfolio remains a big growth driver. The company continues to see strong demand in the U.S. for its Zyn nicotine pouches, while it is also seeing rapid growth in international markets outside its Nordic roots. It is also looking to introduce a new version of Zyn, called Zyn Ultra, once it gets FDA approval.

At the same time, its Iqos heated-tobacco units are seeing strong growth in Japan and Europe and making strong inroads into major cities outside of these areas. It is also looking to introduce Iqos across the U.S. once it receives FDA approval for its newer Iluma device. Notably, these products all have better unit economics than traditional cigarettes.

Overall, Philip Morris is a nice growth stock in a defensive industry that should perform well in a recession.

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Geoffrey Seiler has positions in Philip Morris International and Warner Bros. Discovery. The Motley Fool has positions in and recommends Netflix, Walmart, and Warner Bros. Discovery. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.