Investors may not like the dreaded "r" word, but "recessions" are a normal part of the economic cycle.

According to a number of recession-probability indicators, the likelihood of a U.S. recession materializing in the not-too-distant future has been growing. The New York Federal Reserve's recessional probability indicator, Conference Board Leading Economic Index, and U.S. ISM Manufacturing New Orders Index, are all sounding warnings that economic activity in the U.S. is set to slow.

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Although recessions are generally bad news for the broader market in the short term, there are stocks that possess the tools and intangibles to shine during economic downturns. If a U.S. recession were to materialize at some point this year or in early 2024, the following three surefire stocks can still thrive.

Vertex Pharmaceuticals

The first phenomenal stock that offers a rock-solid foundation, even if a recession arises, is biotech stock Vertex Pharmaceuticals (VRTX -2.20%).

One consistency you'll note about the three companies on this list is they operate in sectors or industries that provide what's effectively a basic necessity good or service. Since we can't control when we become ill or what ailment(s) we develop, there's always demand for prescription drugs, medical devices, and various healthcare services.

What's allowed Vertex to stand out for years is its overwhelming success helping patients with cystic fibrosis (CF), a genetic disease characterized by thick mucus production that can obstruct the lungs and/or pancreas of patients. Though CF has no cure, Vertex has developed and marketed four generations of mutation-specific CF therapies with a focus on improving lung function. The company is currently testing a fifth-generation combination therapy in clinical trials.

Last year, Vertex brought in $8.93 billion in net product sales entirely tied to its CF franchise.  Ongoing innovation within CF, label expansion opportunities to new age categories, and targeting the most-common mutation (f508del), has set the company up for ongoing success and protected its cash cow.

But there's also opportunity for Vertex beyond CF. Exagamglogene autotemcel (better known as exa-cel), which is being developed in collaboration with CRISPR Therapeutics as a treatment for severe sickle cell disease and transfusion-dependent beta thalassemia, is one of Vertex's most-promising near-term product launch opportunities. Experimental acute pain treatment VX-548, which is being examined in a phase 3 trial, is another possible source of future revenue.

Vertex Pharmaceuticals is sitting on quite the war chest as well. The company's cash, cash equivalents, and marketable securities climbed to $10.8 billion in 2022 from $7.5 billion in the previous year. This abundance of capital provides plenty of buffer and allows Vertex to remain focused on innovation.


A second surefire stock that's fully capable of outperforming during a recession is telecom company AT&T (T -1.31%).

While wireless and internet access aren't quite on the same level as patients needing potentially life-saving pharmaceuticals, there's certainly a stickiness to the services AT&T offers. Having a smartphone, as well as access to wireless and interest services, isn't something most Americans are willing to give up. During previous economic hiccups, AT&T's churn rate didn't budge much, which is an indication that its operating cash flow should be relatively predictable during a recession.

Regardless of whether a recession materializes in the U.S., AT&T is going to continue upgrading its wireless infrastructure to support 5G download speeds. Since the last major upgrade to download speeds occurred in the early 2010s, there should be a sustained device replacement cycle that leads to an increase in data consumption. Data is AT&T's most-valuable cog within its wireless division. If data consumption steadily rises due to the 5G revolution, the expectation would be for AT&T's profit and operating margin to follow suit.

However, AT&T has more going for it than wireless service revenue growth, which hit a decade high during the third quarter of 2022.  Thanks to investments in 5G mid-band spectrum, AT&T logged its fifth consecutive year of at least 1 million net broadband additions in 2022.  Broadband is proving to be quite the lure for consumers and businesses when it comes to service bundling.

Something else that provided a nice lift for AT&T is its spinoff of WarnerMedia last April. When WarnerMedia was spun off and merged with Discovery to create a new media stock, Warner Bros. Discovery, the new entity took responsibility for certain lots of debt AT&T previously had on its books. In combination with cash payments, this spinoff led to AT&T receiving over $40 billion.  Though there's still plenty of work to do lower the company's debt levels, AT&T's balance sheet is in better shape than it was a year or two ago.

With a minute price-to-earnings ratio of less than 8, AT&T offers a safe floor with reasonable upside, as well as a 6% dividend yield to boot.

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NextEra Energy

The third surefire stock that can thrive during a recession is the nation's largest electric utility by market cap, NextEra Energy (NEE 1.20%).

As I mentioned, basic necessity stocks tend to perform really well in any economic environment. If U.S. economic activity were to weaken, demand for electricity would be unlikely to wane in any meaningful way. It's this cash flow predictability that's made NextEra such an incredible investment for more than a decade.

NextEra Energy's clearly defined competitive advantage is its renewable energy portfolio. It currently has 30 gigawatts (GW) of renewable energy in operation, including 22 GW of wind power and 5 GW of solar capacity. Both figures are tops in the world by a considerable amount.  Although investing in clean-energy can be pricey, the company was able to take advantage of more than a decade of low interest rates to make these projects a reality. The end result is reduced electricity generation expenses and a compound annual earnings growth rate of more than 8% over the past 15 years. 

But NextEra isn't anywhere close to finished when it comes to building out its renewable energy and storage portfolio. As of Jan. 25, 2023, the expectation is the company will build between 33 GW and 42 GW of clean-energy projects from 2023 through 2026. 

It should probably also be said that if Capitol Hill were to set clean energy standards or targets for the nation's electric utilities, NextEra would be well ahead of its competition in reaching those goals.

The other roughly 35 GW of energy attributed to NextEra derives from its regulated operations. Regulated operators can't raise their utility rates on a whim. In NextEra's case, it's required to seek authorization for price increases from Florida's Public Service Commission. Here's the thing: While this might sound like a hassle, it all but ensures NextEra isn't exposed to uncertain and potentially volatile wholesale electricity pricing. Everything ties back to the idea that NextEra's cash flow is highly predictable, which is what would allow the company's stock to thrive during a recession.