Executive Edge

Stock picks to survive an economic downturn

Stock picks to survive an economic downturn

Uncertainty about the global economy, stock market volatility and the continued oil price rout has some market players using the "R" word again.

And even if a full blown recession isn't at the gates, we're likely in for a downturn as Friday's report on U.S. GDP is expected to show the slowest growth in nearly two years.

But instead of battening down the hatches, some historical trades may prove profitable.

According to Kensho, a tool designed to quantify historical market events, certain industries and stocks outperform the broader markets when real GDP falls below 2 percent. We looked at looked at data from nine cycles of weak GDP growth since 1990.

Best performers when GDP falls below 2%

Source: Kensho

During times of economic uncertainty, it helps to stay defensive. The thinking goes: Consumers will cut back on things they want — like a new gadget or sunny getaway — but they still need to spend on things they need —such as food, medicine and utilities.

But some defensive sectors are better than others. So don't buy in blindly.

The best performing sectors when growth slows are consumer staples and health care — by far. But the stats say that, for whatever reason, the telecommunication sector has underperformed in these scenarios. Though defensive, it's the biggest loser of all 10 sectors during slow growth.

Stocks have followed a similar pattern: It largely pays to stay defensive — with a few exceptions.

Food stocks General Mills, Kellogg and JM Smucker have outperformed the likes of Starbucks and Darden Restaurants. McDonald's, a cheap and quick food option, has also been a good bet.

And anticipating that consumers likely look for deals when cash is tight, investors typically push up shares of Wal-Mart, Ross Stores and Dollar Tree.

Google's stock price appears on the NASDAQ Marketsite just before the market close, August 19, 2004.
How to play a rebound in hard-hit tech sector

Historically, some of the best health-care trades have been Perrigo Company, Dentsply International and Stryker.

And for the best utilities of the bunch, look to Wisconsin Energy Group, Southwestern Energy and Waste Management.

Nike and Coach have been exceptions — rising to the top during periods of slow growth since 1990 and even outperforming defensive names.

As always, past performance is no guarantee of future results. But if you're looking to adjust your portfolio for an economic downturn, these historical trades may be a good starting point.

DISCLOSURE: NBC Universal, the parent company of CNBC, is a minority investor in Kensho.