These are the stocks to own if a recession hits, Citi says

Published Tue, Apr 19 20228:48 PM EDT

Citi has named a raft of stocks it thinks will do well if a recession comes to fruition. Investors are bracing themselves for a possible recession, after a host of Wall Street banks issued warnings amid persistently high inflation, slowing growth, high unemployment and the prospect of a steep rate hike cycle. However, analysts remain divided over if — and when — a recession will strike. Citi believes such risks will rise significantly by mid-to-late 2023, but should be more limited this year. In a note on April 18, Citi strategists led by Scott Chronert noted that recession concerns are now being reflected in equities, as investors react to curve inversions, rising real rates and expectations for a late-2023 rate cut. "Recession risks are more limited in 2022 but rise significantly by mid-to-late 2023. Equity markets have begun pricing this in already, but we expect fallout to be felt mostly in [first half of 2023]" Chronert added. If a "mild" recession hits the U.S. economy, Citi believes investors will realign their portfolios to more traditionally defensive sectors where earnings profiles are less sensitive to economic activity. Here, CNBC Pro highlights a number of stocks that Citi thinks will perform best in a recessionary environment. Communication services T-Mobile is the bank's top pick in communications services. Verizon is also likely to be viewed as defensive in a recession scenario, and could get a boost after the recent underperformance, Chronert said. Citi is positive on communication infrastructure stocks, with the bank having buy ratings on American Tower and SBA Communications . Energy Energy stocks are likely to continue to outperform the market in a "worse than stagflation" scenario, where energy prices spike in response to a decline in supply, according to Chronert. Citi noted that shareholder returns in U.S. exploration and production stocks would likely remain "attractive" and in the double digits. Its top picks in this space include Coterra Energy and Occidental Petroleum . However, the bank warned that a more traditional recession would likely negatively impact the sector, with the bank tipping EOG Resources to be the best performer in this scenario, given it has said it will aggressively deploy its cash balance in the event of a market dislocation. More diversified global companies, such as Schlumberger and Baker Hughes , would also likely outperform, Chronert said. Read more Goldman says recession risks are growing, but it's too early to worry. Here's why Top strategist says to own stocks in these sectors to beat any recession Healthcare "We do not think that a recession will have an outsized impact on healthcare technology stocks as most of our coverage should be buffered by their recurring revenue models and high retention rates," Chronert said. Citi noted that investors are seeking to balance the potential benefits of higher revenue as elective procedures recover, as well as potential headwinds to expenses from the macro environment. The bank added that the medical technology sector has traditionally been defensive in recessionary times. It suggested a dual strategy of more defensive, dividend-paying stocks, such as Johnson & Johnson and Medtronic , balanced with large-cap growth stocks, such as DexCom and Edwards Lifesciences . Technology Citi said the software sector has several defensive characteristics, such as a recurring revenue model and cost deflationary attributes that provide significant earnings and cash flow preservation during challenging economic cycles. The bank noted that infrastructure or cybersecurity software assets have typically performed best in a downturn, due to their large installed customer base, among other factors. Stocks which the bank thinks are more defensive in this space include Check Point Software , Palo Alto , Informatica and Oracle .

A Citibank branch in the central business district of Singapore on Feb. 12, 2018.

Ore Huiying | Bloomberg | Getty Images

Citi has named a raft of stocks it thinks will do well if a recession comes to fruition.