As investors rotate out of tech shares, history shows these stocks could benefit

Published Sat, Jan 8 20228:48 AM EST

The technology sector had a rough start to the new year but if history is any guide, certain stocks perform well when investors are dumping growth names. CNBC Pro screened for stocks that are consistent winners when the tech sector is losing, like it did this week. We found a handful of defensive names that investors might want to consider while tech names get punished. A spike in bond yields spurred the underperformance of tech stocks this week. The Nasdaq Composite dropped 4.5% from Monday to Friday for its worst week since February. The 10-year Treasury yield topped 1.79% on Friday, as investors digested December's jobs report and the Federal Reserve's latest meeting minutes, in which officials indicated that the central bank was ready to more aggressively pull back its policy support of the economy. Higher rates typically hurt growth pockets of the market that rely on low rates to borrow for investing in innovation. And their future earnings look less attractive when rates are spiking. The Technology Select Sector SPDR ETF , which trades under ticker XLK, dropped 4.3% this week. To find which stocks are consistent winners when tech is losing, CNBC Pro looked at the seven largest monthly declines for tech the last five years using the Technology Select Sector SPDR ETF as a proxy. We threw out March and February of 2020, as markets were disproportionally effected by the start of the pandemic. CNBC Pro then looked at the performance of every company in the S & P 500 during the losing tech months and found the stocks with the best average performance. We threw out any stocks that dropped more than 5% during any of those single months. Take a look at CNBC Pro's list here. Tech is the traditional market leader so when the sector falters, the market typically doesn't do as well, like it has this year. The S & P 500 and Dow Jones Industrial Average lost 1.9% and 0.3%, respectively. So our screen also reveals investors might want to look at highly defensive stocks, or those that provide stable earnings and dividends regardless of the strength of the overall market. CNBC Pro's list is full of defensive names like Dollar General , Hershey and Procter & Gamble . Discount retailer Dollar General gained an average of 8.5% in the last seven times the XLK experienced sell-off. Plus, about a third of Wall Street analysts recommend buying the stock. Chocolate company Hershey rose an average of 6.1% and Procter & Gamble gained an average of 5.8% in the most recent periods of tech weakness. Insurance company Arthur J. Gallagher & Co. is another stock that performs well when tech is in trouble. The company advanced an average of 5.7% in the last seven times tech saw a major drop off. Utilities companies NiSource and Consolidated Edison also earned spots on CNBC Pro's list. The pair rose an average of 1.9% and 0.3%, respectively, when the XLK saw a large drop. NiSource, a natural gas company, has nearly 70% of Wall Street analysts calling its stock a buy. All of the listed stocks, expect Procter & Gamble and Arthur J. Gallagher & Co., gained this week while tech and the broader market declined.

A Dollar General store in Creve Coeur, Illinois.

Daniel Acker | Bloomberg | Getty Images

The technology sector had a rough start to the new year but if history is any guide, certain stocks perform well when investors are dumping growth names.