What to own during a recession: These stocks have a good track record during downturns

Published Thu, Jun 16 202210:30 AM EDTUpdated Thu, Jun 16 20221:11 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The latest monster Federal Reserve rate hike and a series of poor economic readings have put recession worries at the top of minds on Wall Street, but history shows there are always some stocks where investors can ride out a slowdown. Fears of a recession have spread in recent months, as inflation has stayed stubbornly high at the same time as economic growth has slowed. On Thursday, weekly initial jobless claims came in higher than expected, while housing starts in May were much weaker than expected. The Philly Fed Index for June unexpectedly declined. Following a surprising 1.4% GDP decline last quarter, the Atlanta Fed's GDPNow tracker now shows 0% growth for the second quarter. The Federal Reserve's economic projections , which have proven to be too optimistic recently, now show unemployment ticking higher in the years ahead. Recession periods are rough for even some of the top companies in the United States, but there are some stocks that have proven to be resilient during downturns. The list below shows stocks in the S & P 1500 index that have averaged a positive return over the past three recessions, never had a drop of more than 5% during any one of those periods and are outperforming in 2022. Source: FactSet Some of the top names are small and midcap companies. Logistics company Marten Transport has led the way with an average return of 28% during the prior three recessions. Network technology company Adtran has averaged a 12% return, and it has gotten some recent praise from Wall Street. "Adtran is in the midst of an unprecedented demand cycle that looks to have 5+ years of strong runway," Rosenblatt Securities analyst Mike Genovese said in a note to clients on June 12. Rosenblatt reiterated its buy rating on the stock, pointing to planned government spending on network and communications technology. There are plenty of large, traditional defensive stocks on the list as well. Amgen and Walmart have average returns of 14.7% and 9.3%, respectively, over the past three recessions. Walmart's stock has fallen about 17% this year, struggling with many other retailers, but history shows it is a relative winner during recessions. The list also includes some stocks that have gotten positive news recently. J.M. Smucker , for example, beat earnings and sales estimates for its most recent quarter, which it reported on June 7. On Thursday, McDonald's got a positive note from Argus Research, which reiterated its buy rating on the fast-food stock. "We expect McDonald's, with its strong digital, delivery, and drive-thru businesses, to endure a period of soft industry sales better than most other restaurant chains. During the current period of industry weakness, we prefer large restaurant chains like McDonald's that offer value menus, spend heavily on advertising, and have clean balance sheets," Argus analyst John Staszak said in a note to clients. Argus is far from alone in being bullish on the stock. McDonald's has a buy rating from 71% of Wall Street analysts, according to FactSet. — CNBC's Michael Bloom contributed to this report.