In the current market climate, experts believe there is a notable opportunity for investors to consider incorporating counter-cyclical stocks into their investment portfolios. These stocks are particularly appealing during economic fluctuations, as they tend to perform better when the market is experiencing downturns.

One of the most pressing issues facing the U.S. stock market today is the disruptive impact of what many are calling the 'Trump 2.0 Tariff Turmoil.' Coupled with a series of bold policy changes from the new administration, these factors have been instrumental in eroding consumer confidence. Evidence of this decline is stark; the Consumer Confidence Index reported a significant drop in March, marking its lowest level since January 2021. Even individuals within the Trump administration acknowledge that the ongoing trade policies and regulation changes could slow economic growth in the short term, although they maintain that these measures are paving the way for what they describe as a “Golden Age of America” in the future.

Financial theory, particularly as illustrated by Markowitz's modern portfolio theory from 1952, supports the idea that adding counter-cyclical stocks to an investment portfolio can enhance risk-adjusted returns. By incorporating stocks that are traditionally less correlated or even negatively correlated with broad market trends, investors can significantly reduce volatility while still achieving favorable returns. Numerous empirical studies back this assertion, indicating that portfolios with counter-cyclical stocks are typically more stable and exhibit less volatility during recessions—a characteristic that many investors find particularly attractive.

Peter Lynch, a legendary fund manager, emphasized the importance of investing in stable companies during economic downturns. He highlighted that counter-cyclical stocks generally thrive during such periods, providing a layer of stability when the markets are unpredictable. Typically, these resilient companies are found within defensive sectors such as utilities, healthcare, and consumer staples, offering essential products and services that consumers continue to purchase, irrespective of their financial constraints. Moreover, true counter-cyclical stocks often experience growth spikes during recessions, thanks to consumers looking for cost-saving alternatives. Discount retailers and affordable clothing brands exemplify this trend.

Recently, we compiled a list of the '11 Best Counter-Cyclical Stocks to Buy According to Analysts.' In this article, we will place a spotlight on Walmart Inc. (NYSE:WMT) and compare its standing among the top counter-cyclical stocks recommended by analysts.

Business surveys have indicated a growing concern among the populace regarding job availability in the coming months. This alarming trend is often indicative of the onset of economic recessions, reminiscent of the dot-com bubble burst, the 2008 financial crisis, and the 2022 bear market. Consequently, prominent research entities, including Yardeni Research and Goldman Sachs, have raised their estimates for the probability of the U.S. economy slipping into recession by 2025, although these estimates still remain below 50% on average.

Several factors could contribute to the potential recession, including a one-off inflation shock stemming from anticipated tariffs, a widespread slowdown in business capital expenditure expectations leading to layoffs, and a more cautious consumer base due to increasing uncertainty and diminishing purchasing power. In these challenging conditions, counter-cyclical stocks are likely to see notable business acceleration, potentially yielding superior returns compared to the overall market. Analysts suggest that the most promising counter-cyclical stocks possess significant upside potential, backed by a history of strong performance in previous economic cycles.

Our Methodology

To identify the best counter-cyclical stocks, we reviewed various business literature detailing the characteristics of these stocks and manually selected 20 to 30 candidates known for their resilience during economic downturns, including the 2008 and 2022 bear markets. From this selection, we identified the top 11 stocks with the most substantial average upside potential, according to analyst estimates, and arranged them in ascending order. Additionally, for each stock, we noted the number of hedge funds holding that stock as of Q4 2024.

Why focus on stocks favored by hedge funds? Research indicates that mimicking the top stock picks of leading hedge funds can yield market-beating results. Our quarterly newsletter strategy, which selects a mix of small-cap and large-cap stocks, has returned an impressive 373.4% since May 2014, outperforming its benchmark by 218 percentage points.

Walmart Inc. (WMT): The Leading Counter-Cyclical Stock?

Walmart Inc. (NYSE:WMT) is a prominent multinational retail corporation operating a range of hypermarkets, discount department stores, and grocery stores both in the U.S. and in 23 other nations. The company provides a diverse array of goods and services at consistently low prices, spanning categories such as clothing, home goods, electronics, and food items. With various operational formats including supercenters, discount stores, neighborhood markets, and extensive e-commerce platforms, Walmart serves approximately 270 million customers weekly. The company often becomes a go-to destination for budget-conscious shoppers during economic downturns, thereby solidifying its position as one of the leading cyclical stocks to consider in anticipation of potential recessions.

Walmart reported impressive fourth-quarter results, with sales climbing by 5.2% and adjusted operating income rising by 9.4% when accounting for constant currency fluctuations. The retail giant managed to capture market share across multiple demographics, propelled by increased transaction volumes and unit sales. E-commerce also saw significant advancements, contributing to 18% of total revenue—an increase of 1,100 basis points since fiscal 2020. Additionally, Walmart's advertising revenue surged by 27% to approximately $4.4 billion, while U.S. Marketplace revenue increased by 37%, with nearly 45% of orders being fulfilled via Walmart Fulfillment Services. The company's membership income also grew robustly, up 21% to around $3.8 billion.

Walmart's return on investment improved by 50 basis points to reach a noteworthy 15.5%, a level not witnessed since 2016. Reflecting its robust financial health, Walmart declared a 13% increase in dividends, marking its most significant hike in over ten years. Looking forward to fiscal 2026, management anticipates consolidated net sales growth of approximately 3% to 4%, with operating income projected to grow even more rapidly at a rate between 3.5% and 5.5%. The evolving consumer demand for expedited delivery services has resulted in over 30% of orders incurring paid convenience fees, while the company's digital transition continues to gain momentum, as evidenced by an 80% year-on-year improvement in U.S. e-commerce losses. Moreover, Walmart has committed to value by introducing more than 22,000 product rollbacks across its U.S. stores in the past year.

In summary, Walmart Inc. ranks first on our list of top counter-cyclical stocks recommended by analysts. However, while we recognize Walmart's potential as a sound investment, our analysis suggests that AI stocks may offer even greater prospects for higher returns, particularly in a shorter timeframe. There is one AI stock that has shown growth since the start of 2025, while many popular AI stocks have declined by around 25%. For those interested in exploring an AI stock that is more promising than Walmart and trades at less than five times its earnings, we encourage you to check out our report on this compelling 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 was originally published at Insider Monkey.