In the current economic landscape, characterized by fluctuating market conditions, experts believe it is an opportune time for investors to consider diversifying their portfolios with counter cyclical stocks. These types of stocks tend to perform better during economic downturns, offering a potential refuge for wary investors. Recent developments in the U.S. stock market, particularly the ongoing Trump 2.0 Tariff Turmoil and various significant policy changes introduced by the new administration, have raised concerns about consumer confidence, which has reportedly started to wane.

The Consumer Confidence Index has notably dropped in March, reflecting the lowest level since January 2021. This decline suggests that even though consumers are generally healthy, there is a growing apprehension about the future. The administration itself has acknowledged that its approach to tariffs and cryptocurrency policies, particularly concerning DOGE, might create a temporary slowdown in economic growth. However, they posit that these measures will eventually pave the way for what they term “The Golden Age of America” in the longer term.

The principles of modern portfolio theory, established by economist Harry Markowitz in 1952, provide a framework for why including counter cyclical stocks in an investment portfolio can yield better risk-adjusted returns. These stocks are characterized by their low or even negative correlation with the broader market, thus serving as a stabilizing force during periods of volatility. Notable fund manager Peter Lynch has also highlighted the importance of investing in stable companies during economic downturns.

Counter cyclical stocks are particularly attractive because they tend to excel when the economy falters. These resilient companies typically belong to defensive sectors such as utilities, consumer staples, and healthcare, providing necessary goods and services that consumers rely on regardless of financial constraints. Moreover, the most effective counter cyclical stocks may even experience growth during recessive periods, as consumers seek more affordable options — think of discount retailers and budget clothing brands. For this reason, investors often flock to these stocks, as they not only preserve value but may also appreciate when other sectors are struggling.

Recently, we published a comprehensive list of the 11 Best Counter Cyclical Stocks to Buy According to Analysts. In this article, we will focus on how British American Tobacco p.l.c. (NYSE:BTI) compares to other stocks identified as market leaders.

As consumer sentiment continues to shift, business surveys indicate an increasing expectation of job reductions in the near future. Historical data shows that a significant decline in both consumer confidence and employment metrics often precedes recessions, as witnessed during the dot-com bubble burst, the 2008 financial crisis, and the 2022 bear market. Consequently, research firms like Yardeni Research and Goldman Sachs have raised the likelihood of a U.S. recession occurring by 2025, although the predicted probability remains under 50% on average.

Potential triggers for an impending recession could include a one-time inflation spike from anticipated tariffs, a lack of business capital expenditure (CapEx) that might lead to layoffs, and a shift towards more cautious consumer spending stemming from increasing uncertainty and diminishing purchasing power. Under these circumstances, counter-cyclical stocks stand to not only weather the storm but could also see accelerated business activity, resulting in superior returns compared to the broader market. The best counter-cyclical stocks are those identified by analysts as having substantial upside potential and a solid track record of performance during prior economic downturns.

Our Methodology

To identify the most promising counter cyclical stocks, we examined literature detailing the defining characteristics of these stocks and curated a list of 20 to 30 candidates known for their strong performance during economic downturns, such as those seen in 2008 and 2022. Subsequently, we selected the top 11 stocks based on their average upside potential as forecasted by analysts, ranking them in ascending order. Each stock profile also includes data on how many hedge funds held the stock as of Q4 2024.

Why focus on stocks favored by hedge funds? Research has indicated that mimicking the top stock selections of successful hedge funds can lead to market outperformance. Our quarterly newsletter strategy, which selects a mix of small-cap and large-cap stocks every quarter, has generated a remarkable 373.4% return since May 2014, significantly outperforming its benchmark by 218 percentage points.

Is British American Tobacco p.l.c. (BTI) the Best Counter Cyclical Stock According to Analysts?

British American Tobacco p.l.c. (NYSE:BTI), one of the world’s largest tobacco firms, boasts a diverse product lineup that includes traditional cigarettes, smokeless tobacco, and innovative next-generation vaporizers and heated tobacco products. The company is well-recognized for its iconic brands such as Dunhill and Lucky Strike and operates across more than 180 countries worldwide. Their robust distribution network, compliance with rigorous regulations, and commitment to harm-reduction strategies ensure they remain competitive in a rapidly changing market.

In its most recent quarterly report, British American Tobacco demonstrated encouraging performance, with group revenue increasing by 1.3% year-over-year. Notably, smokeless products now generate 17.5% of total revenue, and the company has welcomed 3.6 million new consumers in this segment in 2024, bringing the total to 29.1 million. In response to the intensifying regulatory landscape surrounding traditional smoking, BTI has made significant strides in advancing its alternative product offerings.

Financially, British American Tobacco has shown rigorous discipline, achieving an operating cash conversion exceeding 100% for the fifth consecutive year, while also successfully reducing financial leverage. Looking ahead, the company anticipates revenue growth of approximately 1% in 2025, despite encountering challenges in markets like Bangladesh and Australia, which are expected to hinder growth by 1%. Nevertheless, management is optimistic about returning to revenue growth rates of 3% to 5% by 2026, fueled by improved performance in the U.S., strong international growth from its Velo brand, and new product innovations in the New Categories segment. Historically, BTI has exhibited a low beta, showcasing resilience during past bear markets, making it one of the most attractive counter cyclical stock options.

In conclusion, BTI ranks fifth in our list of best counter cyclical stocks to consider according to analysts. While we recognize the potential BTI presents as an investment, our own analysis suggests that certain AI stocks may offer even greater promise for higher returns in a shorter timeframe. For instance, there is one AI stock that has shown consistent growth since the beginning of 2025, even as popular AI stocks have lost around 25% in value. For those interested in exploring an AI stock that trades below five times its earnings, we encourage you to check our report on this top inexpensive AI investment opportunity.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.