In this article, we will take a detailed look at the best counter cyclical stocks to buy according to analysts.
Counter cyclical stocks stand out because they tend to perform well during economic downturns, providing relative stability when markets become volatile. These resilient companies typically operate in more defensive sectors like utilities, consumer staples, and healthcare, offering products and services that consumers need, no matter how tight their wallets become. Furthermore, the truly counter cyclical stocks are the ones that experience accelerations in growth during recessions, due to consumers actively searching for ways to save money – think of discount stores or cheap clothes retailers. What makes the best counter cyclical stocks especially compelling is their stability during downturns: investors seek refuge in these stocks because they tend to maintain (or even increase) their value while other market segments struggle.
Financial theory, as pioneered by Markowitz’ modern portfolio theory (1952), suggests that including counter cyclical stocks in a portfolio can improve the overall risk-adjusted returns by significantly reducing volatility while at the same time not impairing the return profile. Modern literature emphasizes that effective diversification can be achieved by combining financial assets whose returns are inversely correlated to one another; counter-cyclical stocks align well with this principle due to their low or even negative correlation with the broad markets. Empirical studies confirm that portfolios containing counter cyclical stocks tend to exhibit lower volatility and more stable returns during recessionary periods – this is a highly sought after trait by investors. The legendary fund manager Peter Lynch also emphasized the strength of stable companies in recessions; here’s what he said:
“In economic downturns, invest in companies that make essential products; people will still buy toothpaste and food regardless of the economy.”
READ ALSO: 10 Best Low Risk Stocks To Buy in 2025.
We believe that the current market conditions are potentially suitable for investors to start considering adding the best counter cyclical stocks to their portfolios. The biggest problem we see with the current US stock market is that the Trump 2.0 Tariff Turmoil and a plethora of other aggressive shifts in the policy stance of the new administration are undermining consumer confidence in the future. Consumers, while still strong and healthy, exhibit a rapid deterioration in confidence – the Consumer Confidence Index dropped sharply in March to the lowest reading since January 2021. Even the Trump administration itself admits that its trade and DOGE policies might cause some slowdown in the short term but says they should lead to “The Golden Age of America” in the long term.
Furthermore, business surveys show that increasingly more people are expecting fewer jobs in the upcoming months. A sharp deterioration in both metrics has historically coincided with the onsets of several recessions, such as the dot-com bubble burst, the 2008 crisis, and the 2022 bear market. It is of no surprise that many reputable research boutiques, including Yardeni Research and Goldman Sachs, have recently significantly raised their odds that the US economy will enter a recession in 2025 (although the estimated probability remains below 50% on average).
The drivers of a recession could be a potential one-time inflation shock from the tariffs expected for next week, a widespread slowdown in business Capex expectations that may trigger layoffs, as well as a more frugal consumer due to the overall uncertainty and deterioration in purchasing power. Under such conditions, counter-cyclical stocks could witness a significant acceleration in their business, which in turn may translate into superior returns compared to the broad market. We believe that the best counter-cyclical stocks are the ones that have significant potential upside according to analysts, as well as a proven track record of exceptional performance during previous economic cycles.
Image by Gerd Altmann from Pixabay
Our Methodology
We consulted business literature on the characteristics of the best counter cyclical stocks and manually selected 20-30 stocks with a history of performing well during economic downturns, such as the 2008 and 2022 bear markets. Then, we select the top 11 stocks with the largest average upside potential as estimated by analysts and rank them in ascending order. For each stock, we also include the number of hedge funds that own the stock as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
11. Dollar Tree, Inc. (NASDAQ:DLTR)
Average Upside Potential: 9.42%
Number of Hedge Fund Holders: 64
Dollar Tree, Inc. (NASDAQ:DLTR) is a prominent operator of discount variety stores across the US and Canada, operating under the brands Dollar Tree and Family Dollar. The company offers a diverse range of products, including consumables, household items, and seasonal goods, primarily at fixed price points. During economic downturns, DLTR often experiences increased customer traffic as consumers seek more affordable shopping options.
Dollar Tree, Inc. (NASDAQ:DLTR) announced a significant strategic move with the sale of the Family Dollar business to Brigade-Macellum for over $1 billion, which will enable each banner to focus on its distinct needs and potential. The company delivered solid Q4 performance with Dollar Tree banner achieving a 2% comparable sales growth, driven by both traffic (up 0.7%) and ticket (up 1.3%). The multi-price strategy showed promising results, with 3.0 format stores demonstrating a 220 basis point comp lift compared to other formats, including stronger performance in seasonal merchandise and everyday categories. The company has successfully mitigated over 90% of the impact from the first round of China tariffs, though additional tariffs announced in March could potentially impact costs by approximately $20 million per month before mitigation efforts.
Looking ahead to 2025, Dollar Tree, Inc. (NASDAQ:DLTR) expects comparable store sales growth of 3% to 5%, focusing on expanding multi-price offerings and improving store operations. The company plans to convert approximately 2,000 stores to the 3.0 format and open 300 new stores in 2025, demonstrating continued commitment to growth and operational enhancement. Management emphasized that the separation from Family Dollar will allow DLTR to return to its roots while competing and innovating in new ways, particularly focusing on its signature value, convenience, and discovery shopping experience. DLTR has outperformed the broad market during the 2022 bear market, and is therefore one of the best counter cyclical stocks to consider.
10. Verizon Communications Inc. (NYSE:VZ)
Average Upside Potential: 10.57%
Number of Hedge Fund Holders: 74
Verizon Communications Inc. (NYSE:VZ) is the second largest global telecommunications company and the largest wireless carrier in the United States, serving approximately 146 million subscribers. The company operates through two segments: the Consumer Group, which offers wireless and wireline services to retail customers, and the Business Group, which provides communications solutions to enterprises and government clients. VZ is regarded as a counter cyclical stock because the world continues to rely on its essential communication services and connectivity solutions even during recessions.
Verizon Communications Inc. (NYSE:VZ) delivered strong financial and operational results in 2024, with wireless service revenue growing 3.1% and adjusted EBITDA growing 2.1%, both exceeding the midpoint of guided ranges. The company added nearly 2.5 million postpaid mobility and broadband subscribers while expanding margins, with postpaid phone net adds reaching nearly 900,000 for the year. Broadband performance was particularly strong, with 1.6 million subscriber additions in 2024, including nearly 4.6 million fixed wireless access subscribers, generating over $2.1 billion in revenue.
Looking ahead to 2025, Verizon Communications Inc. (NYSE:VZ) expects wireless service revenue growth between 2% and 2.8%, with the underlying growth nearly double when excluding promotional amortization impacts. The company launched its AI Connect strategy to leverage existing network assets and edge computing capabilities, with a current funnel of over $1 billion in opportunities. Management continues to focus on operational excellence and financial discipline, maintaining its capital allocation priorities of investing in the business, supporting dividend growth, paying down debt, and eventually considering share repurchases. We include VZ on our list of best counter cyclical stocks as it has a strong history of outperforming the US stock market during bear markets, including year-to-date as the US stocks are in correction mode.
9. Flowers Foods, Inc. (NYSE:FLO)
Average Upside Potential: 10.73%
Number of Hedge Fund Holders: 30
Flowers Foods, Inc. (NYSE:FLO) is a leading producer and marketer of packaged bakery products in the United States. The company operates 45 bakeries across 19 states, producing a wide range of fresh breads, buns, rolls, snack cakes, and tortillas. Its portfolio includes well-known brands such as Nature’s Own, Dave’s Killer Bread, Wonder, Tastykake, and Canyon Bakehouse. During periods of economic weakness, demand for FLO’s products tends to remain resilient, as baked goods are considered everyday essentials in household consumption.
Flowers Foods, Inc. (NYSE:FLO) is generating annual revenues around $5 billion with well-known brands. The company operates in a large and stable category worth $32 billion that reaches 98% of households, demonstrating its position as a staple in the American diet. The company has demonstrated strong brand leadership with Nature’s Own being the #1 loaf brand, Dave’s Killer Bread commanding a 75% share in organic bread, and Canyon Bakehouse leading the gluten-free bread segment. The recent acquisition of Simple Mills enhances the company’s exposure to better-for-you and attractive snacking segments while diversifying category exposure and improving growth and margin prospects.
Flowers Foods, Inc. (NYSE:FLO)’s portfolio strategy focuses on shifting a greater percentage of sales to branded products, which has already increased from 59% in 2019 to 68% today following the Simple Mills acquisition. FLO maintains strong cash flow generation and a conservative financial approach, maintaining its investment-grade credit profile while consistently paying dividends for 89 consecutive quarters. Looking ahead, management is focused on executing four strategic priorities: developing their team, focusing on brands, prioritizing margins, and pursuing smart M&A opportunities, all while maintaining a conservative capital structure. With an average potential upside of 10.73% according to analysts, FLO is one of the best counter cyclical stocks.
