11 Best Counter Cyclical Stocks To Buy Now

In this article, we discuss 11 best counter cyclical stocks to buy now.

A counter cyclical stock is a term used to describe the shares of a company that operates in an industry or sector that typically experiences financial performance that is inversely correlated to the overall state of the economy. This means that the stock price tends to move in the opposite direction of the general economic trend. During times of economic downturn or recession, the stock price of a counter cyclical company tends to increase, while during times of economic expansion, it tends to decrease in value. 

The ongoing conflict between Russia and Ukraine remains a significant concern for the global economy. Although there have been some recent positive developments, the recovery is expected to be moderate over the next two years. The outlook is fragile, and there are many risks that could lead to a decline in economic activity. The uncertainty created by the war could have a severe impact on trade. Additionally, there are concerns about financial vulnerabilities, particularly in financial institutions, housing markets, and low-income countries. Although there has been a decline in headline inflation, it remains high and could persist for a more extended period. The global economy experienced a slowdown in growth in 2022, with a rate of 3.2%, which was more than 1 percentage point lower than the expected rate at the end of 2021. The main reasons for this were the ongoing conflict between Russia and Ukraine and the resulting cost-of-living crisis in several countries. OECD predicts that growth will continue to be lower than expected in 2023 and 2024.

Against the current economic backdrop, investors who used to have portfolios focused on growth are actively seeking stocks that typically perform well during times of economic downturns and slower growth. These types of stocks, such as PepsiCo, Inc. (NASDAQ:PEP), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), are known as counter cyclical stocks and tend to perform better during recessions.

Our Methodology 

The companies that tend to outperform the wider market during economic downturns or recessions were selected for this list, including discount retailers, tobacco firms, agriculture and food businesses, as well as healthcare and insurance firms. We chose the top counter cyclical stocks based on overall hedge fund sentiment. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the fourth quarter of 2022. The list is arranged in ascending order of the number of hedge fund holders in each firm. 

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Best Counter Cyclical Stocks To Buy Now

11. Philip Morris International Inc. (NYSE:PM)

Number of Hedge Fund Holders: 47

Philip Morris International Inc. (NYSE:PM) is one of the biggest tobacco and cigarette companies in the world. Demand for tobacco increases when consumers are facing higher stress, unemployment, and financial constraints during economic slowdowns. On March 9, Philip Morris International Inc. declared a $1.27 per share quarterly dividend, in line with previous. The dividend is payable on April 11, to shareholders of record on March 23. 

On March 1, UBS upgraded Philip Morris International Inc. to Buy from Neutral with a price target of $116, up from $106. The firm predicts a growth acceleration in the shipment of heated tobacco products in mature markets due to Iluma, and appreciates the company’s “strong cash flow” in the combustible business. Despite Iluma’s current margin dilution, UBS suggests that new product launches will generate immediate volume and share growth, with scale benefits to be realized in the second half of 2023. The launch of Bonds for low-end markets and U.S. IQOS in 2024 is expected to further enhance Philip Morris International Inc.’s status as the “best-in-class” in the tobacco industry.

According to Insider Monkey’s fourth quarter database, Philip Morris International Inc. was part of 47 hedge fund portfolios, and Rajiv Jain’s GQG Partners held the largest stake in the company, comprising 24.25 million shares worth $2.45 billion. 

Like PepsiCo, Inc., Johnson & Johnson, and The Procter & Gamble Company, Philip Morris International Inc. is one of the best counter cyclical stocks to invest in.

Broyhill Asset Management made the following comment about Philip Morris International Inc. in its Q4 2022 investor letter:

“Philip Morris International Inc. advanced 11% for the twelve months ending December 2022. After scratching our heads for years, we have to confess to feeling a little bit of pleasure watching some of the previous nonsense get their just deserts. When we first disclosed our investment in Philip Morris, we highlighted the gap between the “haves” and the “have nots” using the Horizons Marijuana Life Sciences Index, which had gained 140% in a few weeks, as an example. The top five stocks in this index generated $1.6B in sales in FY20 and traded at a combined $37.3B market capitalization or more than 23x sales. In contrast, Reduced Risk Products (RRPs) at Philip Morris (PM) generated over $6.8B in FY20 sales, which was less than 20x PM’s then $135 billion market capitalization. So one could have bought the top five marijuana companies that burned a cumulative $1.2 billion in trailing twelve-month free cash flow for 23x sales or bought Phillip Morris’ RRPs for less than 20x sales and got over $9 billion in free cash flow generated by their traditional business for free! Since then, the Horizons Marijuana Life Sciences Index went on to shed ~ 85% of its value while PM returned ~ 55% over the same period.”

10. Bunge Limited (NYSE:BG)

Number of Hedge Fund Holders: 50

Bunge Limited (NYSE:BG), an American agribusiness and food company, is one of the top counter cyclical stocks to watch. On February 23, Bunge Limited declared a quarterly dividend of $0.625 per share, in line with previous. The dividend is payable on June 2, to shareholders of record on May 19. Effective from March 15, Bunge Limited replaced Signature Bank (NASDAQ:SBNY) in the S&P 500.

On February 9, Baird analyst Ben Kallo downgraded Bunge Limited to Neutral from Outperform with a price target of $115, down from $127. The company topped consensus estimates but issued initial 2023 guidance below Street expectations, the analyst wrote in a research note.

According to Insider Monkey’s fourth quarter database, 50 hedge funds were bullish on Bunge Limited, compared to 48 funds in the earlier quarter. Jack Woodruff’s Candlestick Capital Management is the biggest stakeholder of the company, with 1.15 million shares worth $114.7 million. 

Here is what Old West Investment Management has to say about Bunge Limited in its Q1 2022 investor letter:

“Bunge (pronounced BUN-GEE) Ltd is one of the biggest agribusinesses and food companies in the world. There are four worldwide companies that dominate the sector, the others being Archer-Daniels-Midland Cargill, and Dreyfuss. One of our favorite ways to screen for new ideas is following insider buying. When I saw the Form 4 filed by new Bunge CEO Greg Heckman, his purchase of $9 million of BG stock intrigued me. My initial thought was the company gave him the stock as a signing bonus. I contacted BG Investor Relations and asked whether it was a signing bonus or did Heckman actually write a check for $9 million. IR assured me it was his own hard-earned money that he invested in the company he was about to run.

Heckman was a long time executive at Conagra Foods who obviously sensed opportunity at BG. One of his first moves as CEO was to move the company’s HQ from New York to St. Louis, right in the middle of America’s breadbasket. BG had been plagued for years with poor decisions by underperforming management. Heckman’s decision to move to St. Louis was indicative of a no-nonsense style and he would commence cutting expenses and selling non-core assets…” (Click here to see the full text)

9. The Coca-Cola Company (NYSE:KO)

Number of Hedge Fund Holders: 58

The Coca-Cola Company (NYSE:KO) is one of the best counter cyclical stocks to invest in. On February 16, The Coca-Cola Company declared a $0.46 per share quarterly dividend, a 4.5% increase from its prior dividend of $0.44. The dividend is payable on April 3, to shareholders of record on March 17. In 2023, the company announced its 61st consecutive annual dividend increase, making it a reliable dividend king. 

On March 20, Deutsche Bank maintained a Hold rating on The Coca-Cola Company but reduced its price target on the shares from $63 to $60. The firm believes that there is a growing possibility of economic challenges ahead for the consumer staples industry. As a result, Deutsche Bank is becoming more worried about the potential risks to the company’s future financial performance across much of its coverage.

According to Insider Monkey’s fourth quarter database, 58 hedge funds were bullish on The Coca-Cola Company, compared to 59 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the largest position holder in the company, with 400 million shares worth $25.4 billion. 

Rowan Street Capital mentioned The Coca-Cola Company in its Q4 2022 investor letter. Here is what the firm has to say:

“Let’s take The Coca-Cola Company for example. Its dividend yield is 2.8%, earnings are estimated to grow at only 3.6% rate per year over next 4 years, and its earnings multiple is currently at 24x (based on next years forecasted earnings). KO has an anemic growth, so we can argue that paying 24x earnings is not very attractive. Let’s assume that the multiple will stay constant over the next 3-5 years, thus our expected annual returns will be 2.8%+3.6% = 6.4% (that is below the current reported inflation rate and only slightly above the risk-free rate of 4%).”

8. Dollar General Corporation (NYSE:DG)

Number of Hedge Fund Holders: 59

Dollar General Corporation (NYSE:DG) is one of the biggest American discount retailers. On March 16, the company reported a Q4 GAAP EPS of $2.96, beating market estimates by $0.02. Dollar General Corporation also reiterated its plans to execute 3,170 real estate projects in fiscal 2023, including 1,050 new store openings, 2,000 remodels, and 120 store relocations. It is one of the best counter cyclical stocks to monitor. 

On March 17, Deutsche Bank increased its estimated price on Dollar General Corporation shares from $248 to $249 and maintained a Buy rating following the release of the company’s Q4 results. According to the firm, it seems that the market underestimated the expected performance of the company in 2023, which is now anticipated to be more heavily weighted towards the latter half of the year. Additionally, Deutsche Bank suggests that the decrease in planned share buybacks may be due in part to higher levels of capital expenditures.

According to Insider Monkey’s fourth quarter database, 59 hedge funds were long Dollar General Corporation, and Brandon Haley’s Holocene Advisors is a prominent stakeholder of the company, with 788,664 shares worth $194.20 million. 

Here is what Aristotle Capital specifically said about Dollar General Corporation in its Q2 2022 investor letter:

“Dollar General Corporation contributed to performance in the second quarter following the report of first quarter earnings that were above expectations. Strength in the second quarter was driven by better-than-expected sales of consumable items. Guidance for the remainder of the year was increased. In addition to solid earnings, forecasts for the increasing expectations of a recession drove positive sentiment towards consumer discretionary companies with more predictable revenue like dollar stores.”

7. Walmart Inc. (NYSE:WMT)

Number of Hedge Fund Holders: 66

Walmart Inc. (NYSE:WMT) engages in the operation of retail and wholesale worldwide. On February 21, Walmart Inc. declared a $0.57 per share quarterly dividend, a 1.8% increase from its prior dividend of $0.56. The dividend is distributable on April 3, to shareholders of record on March 17. It is one of the best counter cyclical stocks to watch. 

According to Morgan Stanley’s recent survey, Walmart+ has 18.4 million members, which is equivalent to 14.3% of U.S. households. This figure is slightly higher than the previous survey and almost the same as the record high of 18.6 million members in September 2022. The firm believes that there is still room for more growth in Walmart+ based on the actual number of members and the number of respondents who are very likely to join. Morgan Stanley recommends buying Walmart shares and reiterated an Overweight rating with a price target of $160 on March 7. 

Among the hedge funds tracked by Insider Monkey, 66 funds were long Walmart Inc. at the end of Q4 2022, compared to 68 funds in the prior quarter. Rajiv Jain’s GQG Partners is the biggest stakeholder of the company, with 7 million shares worth $993.2 million.

In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Walmart Inc. was one of them. Here is what the fund said:

“The pandemic has created challenges for businesses large and small; one major challenge for large essential retailers such as ClearBridge holdings Home Depot, Walmart Inc. and Costco have been ensuring adequate staffing to meet demand under trying conditions. All three instituted enhanced pay practices during the pandemic, with raises, unplanned bonuses and other benefits helping compensate employees for their efforts in a difficult environment. In September 2020 Walmart raised wages for 165,000 employees, including a number of entry positions to $15 an hour. It followed this in February with a raise for 425,000 workers that moved its average pay above $15 an hour.”

6. Costco Wholesale Corporation (NASDAQ:COST)

Number of Hedge Fund Holders: 66

Costco Wholesale Corporation (NASDAQ:COST) operates membership warehouses and discount retail stores in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. For the twenty-six week period ended February 26, 2023, Costco Wholesale Corporation’s net sales were $116.06 billion, an increase of 7.1% from $108.39 billion last year.

On March 10, Roth MKM increased Costco Wholesale Corporation’s price target from $484 to $494 and maintained a Neutral rating on the shares. The company is experiencing difficulties with its comp sales growth slowing down due to inflation and possible competitive pressures affecting its gross margins. Roth MKM informed investors in a research note that even though Costco is gaining market share and may increase its membership fees, the stock’s value is still too high, considering the limited potential earnings upside in FY23.

According to Insider Monkey’s fourth quarter database, 66 hedge funds were long Costco Wholesale Corporation, compared to 69 funds in the earlier quarter. Ray Dalio’s Bridgewater Associates is a prominent stakeholder of the company, with 937,521 shares worth about $428 million. 

In addition to PepsiCo, Inc., Johnson & Johnson, and The Procter & Gamble Company, Costco Wholesale Corporation is one of the top counter cyclical stocks to invest in. 

Madison Funds made the following comment about Costco Wholesale Corporation in its fourth-quarter 2022 investor letter:

“Costco Wholesale Corporation stock fell after November sales results showed a slowing consumer. The slower November sales were followed by a slight first quarter miss with lower-than-expected margins. Costco commented that they are not seeing trade-down but private label penetration has increased modestly. Traffic continues to be positive, and Costco remains well-positioned in a more challenging macro environment due to its strong value proposition.”

5. PepsiCo, Inc. (NASDAQ:PEP)

Number of Hedge Fund Holders: 70

PepsiCo, Inc. is one of the best counter cyclical stocks to invest in. On February 1, PepsiCo, Inc. declared a quarterly dividend of $1.15 per share, in line with previous. The dividend is payable on March 31, to shareholders of record on March 3. The company has 51 consecutive years of dividend increases under its belt.

On March 20, Deutsche Bank analyst Steve Powers raised the firm’s price target on PepsiCo, Inc. to $188 from $186 and maintained a Hold rating on the shares. The analyst noted that there is a growing possibility of economic challenges for the consumer staples industry, which has increased the firm’s apprehension regarding the potential risks to the company’s future performance across much of its coverage.

According to Insider Monkey’s fourth quarter database, 70 hedge funds were long PepsiCo, Inc., compared to 72 funds in the earlier quarter. Terry Smith’s Fundsmith LLP is the largest stakeholder of the company, with 6.65 million shares worth $1.20 billion. 

Here is what Lindsell Train has to say about PepsiCo, Inc. in its Q3 2022 investor letter:

“At this point, it may help to give a further example of these self-reinforcing moats to illustrate the idea, drawing from the consumer franchises side of our portfolio. In our view, strong consumer brands can similarly exhibit Lindycompatible anti-ageing properties. Consider that the longer a company invests in its brands through advertising and R&D, the stronger and more resonant they may get. When successful, a self-sustaining feedback loop is established, whereby it becomes ever harder to recreate a heritage-rich brand from scratch, raising barriers to entry, and proportionately increasing its likely lifespan. There are plenty of long-lived portfolio franchises I could reference here, but I’ve gone with PepsiCo; partly because we have good time-series stats on it (beware data bias!) but also, as I hope will become evident, because Pepsi over its 129 years has succeeded in creating some wonderfully deep moats.

With Pepsi Cola you get the flagship soft drinks brand, which is both global and generational, but you also get the Frito-Lay salty snacks portfolio assembled alongside it, claiming nearly 40% of the global market. That’s ten-times greater than the nearest competitor and likely higher than the next 65 competitors combined. These are exceptionally strong global bands with market shares to match; the long-term empirical result being Pepsi’s dividend record which over the past 66 years (as far back as we’ve been able to go) has compounded at an annualized rate of 10%. Pepsi is no ‘in at the ground floor’ start-up today, but it wasn’t six decades ago either. Early growth investor Philip Fisher put it well when in 1958 (two years into Pepsi’s current winning streak) he wrote of “companies which in spite of outstanding prospects of major further growth are so financially strong, with roots going so deep into the economic soil, that they qualify under the general classification of ‘institutional stocks’”. PepsiCo fits this description well…” (Click here to see the full text)

4. The Procter & Gamble Company (NYSE:PG)

Number of Hedge Fund Holders: 74

The Procter & Gamble Company is an American multinational packaged consumer products company. It is one of the top counter cyclical stocks to monitor. On March 20, The Procter & Gamble Company’s price target was reduced by Deutsche Bank from $162 to $156, but the firm still assigned a Buy rating to the shares. According to Deutsche Bank, there is a growing possibility of economic difficulties affecting the consumer staples industry, which raises concerns about the future performance of many companies they cover. 

According to Insider Monkey’s fourth quarter database, 74 hedge funds were bullish on The Procter & Gamble Company, compared to 69 funds in the last quarter. Ray Dalio’s Bridgewater Associates held the largest stake in the company, comprising approximately 5 million shares worth $757 million.  

Rowan Street Capital made the following comment about The Procter & Gamble Company in its Q4 2022 investor letter:

“Let’s look at The Procter & Gamble Company. Dividend yield is 2.4%. Earnings are forecasted to grow at 5.9%, and its current earnings multiple is at 25x. Now, lets say over the next 3-5 years the market loses interest in the “safe”, mature companies that grow at anemic rates and gets an appetite for growth again. It’s very unlikely that Mr. Market will be paying 25x for 5.9% earnings growth. Lets assume that multiple declines to the market average of 18x — that would be ~6.9% drag per year on the total expected return over next 3-5 years. If we get 2.4% (dividend) + 5.9% (earnings growth) – 6.9% (decrease in earnings multiple) = 1.4% (annual return we can expect on average from this stock).”

3. Eli Lilly and Company (NYSE:LLY)

Number of Hedge Fund Holders: 76

Eli Lilly and Company (NYSE:LLY) discovers, develops, and markets human pharmaceuticals worldwide. Apart from COVID-19 antibodies, Eli Lilly and Company’s revenue in Q4 2022 increased 5%, or 10% on a constant currency basis, supported by volume growth of primary growth products, partially offset by lower Alimta revenue. Excluding COVID-19 antibodies, total worldwide volume in Q4 2022 increased 13%. It is one of the top counter cyclical stocks to invest in. 

On March 13, Wells Fargo upgraded Eli Lilly and Company to Overweight from Equal Weight with a price target of $375, up from $360. Despite recent weakness in the shares, the firm believes that Eli Lilly and Company’s fundamentals have remained the same, making it a good buying opportunity. The risk/reward into the donanemab Alzheimer’s trial may be in favor of the upside, as per the firm. Additionally, Wells Fargo noted that the stock is down 18% from its peak without any fundamental change, which makes it a good opportunity to invest in the highest growth stock in the large pharma sector.

According to Insider Monkey’s fourth quarter database, 76 hedge funds were long Eli Lilly and Company, compared to 75 funds in the prior quarter. Rajiv Jain’s GQG Partners is the biggest position holder in the company, with 1.6 million shares worth $602.80 million. 

Baron Funds made the following comment about Eli Lilly and Company in its Q4 2022 investor letter:

“Eli Lilly and Company is a large-cap pharmaceutical company. Shares increased on investor optimism about Lilly’s new product pipeline, which includes Mounjaro for diabetes and obesity and Donanemab for Alzheimer’s disease. We continue to think Lilly has a healthy base business with limited near-term patent expirations, a strong pipeline, and potential for significant margin expansion, which should translate to strong revenue and earnings growth over at least the next five years.”

2. Johnson & Johnson (NYSE:JNJ)

Number of Hedge Fund Holders: 84

Johnson & Johnson is an American multinational company that develops, manufactures, and markets various products in the healthcare field worldwide. Johnson & Johnson anticipates its adjusted EPS outlook for FY2023 to fall within the range of $10.45 to $10.65. The consensus estimate for the same period is $10.33. The company also projects its operational sales for the entire year of 2023 to be in the range of $96.9 billion to $97.9 billion, whereas the consensus for the same period is $97.73 billion.

On March 1, Guggenheim initiated coverage of Johnson & Johnson with a Neutral rating and a price target of $161. Although the firm agrees with Johnson & Johnson’s decision to separate its Consumer Health business and sees signs of recovery in the MedTech segment, it would prefer more clarity on the outlook of the Pharma division. This is due to the upcoming patent expirations, including Stelara later in the year. The firm noted that their sales forecast is below management’s expectations of $60 billion in Pharma sales in 2025 and also lower than management’s projections for several pipeline assets with a peak annual sales potential of $1 billion or $5 billion.

According to Insider Monkey’s Q4 data, 84 hedge funds were bullish on Johnson & Johnson, compared to 85 funds in the last quarter. Ray Dalio’s Bridgewater Associates is a prominent stakeholder of the company, with 3.5 million shares worth $630.2 million. 

In its Q2 2022 investor letter, Mayar Capital, an asset management firm, highlighted a few stocks and Johnson & Johnson was one of them. Here is what the fund said:

“Johnson & Johnson is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.

Here’s how JNJ makes and spends a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics (…read more)

1. UnitedHealth Group Incorporated (NYSE:UNH)

Number of Hedge Fund Holders: 110

UnitedHealth Group Incorporated (NYSE:UNH) was incorporated in 1977 and is based in Minnetonka, Minnesota. It operates as a diversified health care company in the United States. UnitedHealth Group Incorporated’s full year 2022 revenues grew 13% year-over-year to $324.16 billion with double digit growth at both Optum and UnitedHealthcare, supported mainly by serving more people. The adjusted EPS for the fourth quarter of the year grew by 19.2% compared to the same period last year, reaching $5.34. Meanwhile, the GAAP EPS increased by 18.08% year-over-year to $5.03. It is one of the best counter cyclical stocks to watch. 

On January 24, Deutsche Bank analyst George Hill raised the firm’s price target on UnitedHealth Group Incorporated to $617 from $615 and maintained a Buy rating on the shares following the Q4 results. Despite uncertainties related to policy changes in Medicare and Medicaid, as well as economic pressure in the commercial sector, the analyst believes that UnitedHealth Group Incorporated is cautious in its guidance and has various strategies to deliver better-than-expected results.

According to Insider Monkey’s fourth quarter database, 110 hedge funds were bullish on UnitedHealth Group Incorporated, and Boykin Curry’s Eagle Capital Management is a prominent stakeholder of the company, with 2.18 million shares worth $1.15 billion. 

Sequoia Fund made the following comment about UnitedHealth Group Incorporated in its Q4 2022 investor letter:

“UnitedHealth Group Incorporated was among Sequoia’s best performing stocks this year, thanks to typically strong financial results and increased appreciation for the business’ relative insensitivity to the broader economy. For the full year 2022, United’s revenues and EPS are expected to be up approximately 13% and 17%, respectively. Versus 2019, the company’s revenues and EPS are expected to have compounded at annual rates of approximately 10% and 14%, respectively.

UnitedHealth Group may not be a particularly beloved company, but it is one of the more entrenched businesses we’ve come across. Managed care, in its various forms-commercial risk, commercial fee, Medicare Advantage, and managed Medicaid- is an utterly essential component of our healthcare system. And in managed care, no one is bigger, more diversified or better run than United. In addition to its managed care business, United owns and operates the country’s third largest pharmacy benefit manger and is also the single largest owner by a wide margin of non-hospital care assets, including physician practices, urgent care centers, and ambulatory surgical centers…” (Click here to read the full text)

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This article is originally published at Insider Monkey.