In this piece, we will take a look at the 12 best counter cyclical stocks to invest in. If you want to skip our introduction of what counter cyclical stocks are and how they behave with respect to the economy and other macroeconomic indicators, then you can skip ahead to take a look at the 5 Best Counter Cyclical Stocks to Invest in.
When we talk about dividing stocks based on their share price behavior in response to economic events and news, the two widely used categories are consumer cyclical and consumer defensive. As their titles suggest, consumer cyclical stocks are those that follow economic cycles. The latter, on the other hand, are also called counter cyclical stocks, and they are considered as a buffer against the broader stock market downturns that often take place if investors believe that the economy is in trouble.
This bifurcation of the stock market between cyclical and counter cyclical stocks is based on their underlying business models. Cyclical socks are typically present in high growth industries such as consumer technology, artificial intelligence, and biotechnology. This means that their business models and markets are dependent on factors such as consumer purchasing power, inflation, and interest rates. These three major economic indicators fluctuate with the economy, and when economic performance is robust and authorities are taking a proactive approach to managing monetary policy, then purchasing power is stable and inflation and interest rates are typically low.
On the flip side, in the case of poor economic performance, both businesses and consumers find it difficult to splurge on luxury items or pricey items such as artificial intelligence processors from NVIDIA Corporation (NASDAQ:NVDA). These processors are believed to cost as much as a whopping $2 million a piece. Consequently, if a business is struggling during an economic downturn or capital is hard to raise due to high interest rates, then companies might be unwilling to buy these chips. As a result, NVIDIA becomes a cyclical stock.
While NVIDIA's consumer or enterprise products are typically considered a luxury, after all, few people need a GPU to just live, stocks such as the mega retail giant Walmart Inc. (NYSE:WMT) are counter cyclical stocks. To be clear, counter cyclical does not imply that if there is say a recession in America then Walmart's shares will rise. Instead, it means that in such a scenario, the stock will tend to lose a smaller portion of its value when compared to the high growth cyclical stocks that we've identified above.
So why do counter cyclical stocks tend to hold their ground when everybody else is running for cover? Well, the answer is relatively simple, and while Walmart is a good example for illustration, we've got an even better example of a counter cyclical stock to pickle your brain. This stock belongs to none other than one of the biggest tobacco companies in the world, the Stamford, Connecticut based counter cyclical giant Philip Morris International Inc. (NYSE:PM). Phillip Morris sells cigarettes, a highly addictive combination of nicotine and the first type of anti depressants developed called monoamine oxidase inhibitors (MAOIs).
This makes cigarette smokers vulnerable to an unending cycle of low dopamine and no dopamine, meaning that they simply have to buy and smoke the tobacco sticks no matter what state the economy is in. Consequently, the demand for cigarettes is unelastic not only to price but also to the smoker's economic condition, and investors, aware of this, pile into these stocks to protect their money in a weak economic environment.
Yet, just because counter cyclical stocks are portfolio buffers in a troubled economy doesn't mean they can't perform well when the economy is kicking. In fact, one counter cyclical stock that has held its ground this year has been Celsius Holdings, Inc. (NASDAQ:CELH) whose shares are up 42% year to date. Here's what Artisan Partners had to say about the stock in its Q4 2023 investor letter:
Celsius is an energy drink company viewed as providing a healthier option than its large competitors. We believe Celsius' product portfolio appeals to a broad demographic, attracting new consumers and more frequent usage occasions in the energy drink category, enabling Celsius to grow sales through market share gains and market expansion. Furthermore, the company signed a US distribution partnership with PepsiCo in October 2022, which is bringing the product into new points of distribution while also improving its penetration across existing points of presence. The end result should be better product availability, increasing brand awareness, higher sales volumes and scale-driven margin improvements.
With these details in mind, let's take a look at hedge funds' favored counter cyclical, or consumer defensive stock picks. A handful of notable names are The Procter & Gamble Company (NYSE:PG), Walmart Inc. (NYSE:WMT), and Philip Morris International Inc. (NYSE:PM).
12 Best Counter Cyclical Stocks to Invest in
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Our Methodology
For our list of the best counter cyclical stocks, we ranked the forty most valuable counter cyclical stocks in terms of their market capitalization by the number of hedge funds that had bought their shares during Q4 2023.
For these top counter cyclical stocks, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Dollar General Corporation (NYSE:DG) is a classic example of a counter cyclical stock as consumers typically flock to its doors when their budgets are stressed in a tough economy. Its stable business model also makes Dollar General Corporation (NYSE:DG) a dividend paying stock, with the latest dividend being 59 cents.
By the end of Q4 2023, 47 out of the 933 hedge funds surveyed by Insider Monkey had invested in Dollar General Corporation (NYSE:DG). Brandon Haley's Holocene Advisors owned the biggest stake which was worth $257 million.
Just like The Walmart Inc. (NYSE:WMT), Procter & Gamble Company (NYSE:PG), and Philip Morris International Inc. (NYSE:PM), Dollar General Corporation (NYSE:DG) is a top counter cyclical stock on the edge fund radar.
Mondelez International, Inc. (NASDAQ:MDLZ) is a food products company that sells chocolates, biscuits, and other products. The firm has been doing well on the financial front as of late since it has beaten analyst EPS estimates in all four of its latest quarters.
For their fourth quarter of 2023 shareholdings, 51 out of the 933 hedge funds profiled by Insider Monkey were the firm's shareholders. Mondelez International, Inc. (NASDAQ:MDLZ)'s largest hedge fund shareholder is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital due to its $237 million stake.
Constellation Brands, Inc. (NYSE:STZ) is an alcoholic beverage company headquartered in Victor, New York. The firm scored a major win in March 2024 when a court ruled that it had not violated any copyright laws of rival AB InBev via its hard seltzer products.
By the end of 2023's final quarter, 53 out of the 933 hedge funds part of Insider Monkey's database had bought and owned Constellation Brands, Inc. (NYSE:STZ)'s shares. Paul Marshall and Ian Wace's Marshall Wace LLP was the biggest investor due to its $340 million investment.
Colgate-Palmolive Company (NYSE:CL) is the well known American personal care and hygiene products company. The firm was out with some great news for investors in March 2024 when it increased its dividend by two cents to 50 cents, with the change applicable from the second quarter.
During 2023's December quarter, 54 out of the 933 hedge funds tracked by Insider Monkey were the firm's shareholders. Colgate-Palmolive Company (NYSE:CL)'s largest stakeholder among these is Jean-Marie Eveillard's First Eagle Investment Management as it owns $874 million worth of shares.
Costco Wholesale Corporation (NASDAQ:COST) is an American grocery store retailer with a global operations base. The firm's well timed foray into selling gold and silver at its stores left Wedbush impressed in April 2024 when the research firm outlined that Costco Wholesale Corporation (NASDAQ:COST) might be seeing sales in this particular area increase.
Insider Monkey dug through 933 hedge fund holdings for their fourth quarter of 2023 shareholdings and found 57 Costco Wholesale Corporation (NASDAQ:COST) investors. Ken Fisher's Fisher Asset Management owned the biggest stake that was worth $1.8 billion.
Target Corporation (NYSE:TGT) is a diversified American retailer headquartered in Minneapolis, Minnesota. Its growth plans for 2024 in the midst of waning inflation were at the center of a research note from Jefferies in April 2024 which saw the research firm increase Target Corporation (NYSE:TGT)'s share price target to $205 and reiterate a Buy rating.
As of December 2023 end, 58 out of the 933 hedge funds tracked by Insider Monkey had invested in the company. The largest Target Corporation (NYSE:TGT) shareholder is Ric Dillon's Diamond Hill Capital through its $401 million investment.
The Coca-Cola Company (NYSE:KO) is one of the biggest carbonated beverage companies in the world. The firm is busy making big moves in April 2024, as it has partnered up with Marvel to market its products and launch limited edition designs.
62 out of the 933 hedge funds surveyed by Insider Monkey were The Coca-Cola Company (NYSE:KO)'s shareholders as of Q4 2023. Warren Buffett's Berkshire Hathaway owned the biggest stake which was worth $23.5 billion. You can also check out
The Procter & Gamble Company (NYSE:PG), The Coca-Cola Company (NYSE:KO), Walmart Inc. (NYSE:WMT), and Philip Morris International Inc. (NYSE:PM) are some hot hedge fund counter cyclical stock picks.
