By Jacob Sonenshine

There aren't many positive points for stock investors right now, but there are a few. Select stocks may be just fine despite tariffs and the economic damage they could cause.

The S&P 500 plummeted 4.8% Thursday after President Donald Trump announced 10% universal tariffs on all imports into the U.S., plus so-called reciprocal tariffs on countries that have the largest trade surpluses with the U.S. This will lift costs for consumers and businesses and reduce demand, with the potential to trigger a recession.

It's the perfect setup for "defensive" stocks to outperform. Those are companies that see little to zero impact to demand and sales when the economy sinks. Consumer staples companies, for instance, can offset any higher costs by lifting prices without seeing much reduction in the number of products they sell.

Wall Street calls the ability to do that pricing power.

The Vanguard Consumer Staples Index Fund was up 0.1% Thursday. Procter & Gamble, which sells Charmin' toilet paper and Tide, among other products and is known for its pricing power, gained 1.7%.

The Utilities Select Sector SPDR exchange-traded fund was only down 0.6% on the day. The Health Care Select Sector SPDR ETF, home to insurers UnitedHealth Group and Cigna, large pharmaceuticals, and medical-device makers, was down 0.8%.

The big pharma companies Amgen and Merck rose 1.4% and fell 0.2%, respectively.

The outperformance for all of these defensive names is likely to continue, given their records when the market fears recession.

According to Dow Jones Market Data, S&P 500 consumer staples stocks have averaged a 0.6% gain in the three months leading up to the start of a recession, dating back to the late 1980s, compared with an average decline of almost 4% for the S&P 500. Utilities' gain has averaged 0.7%, while healthcare stocks have been more or less unchanged, on average, though in one of those three-month stretches, healthcare stocks gained 21%.

Healthcare, specifically, is home to a few names that just might be worth buying today. One is Becton Dickinson, the $64 billion medical equipment maker. Its stock fell 2% Thursday, which the shares likely don't deserve.

The company, a trusted supplier to hospitals, has a solid history of selling a variety of medical products. Its sales have risen every year but one since 2011, according to FactSet, growing at just over 2% annually to $20.6 billion last year. While demand for its products is no longer growing rapidly, it does have pricing power, Morgan Stanley analyst Patrick Wood wrote in a recent research note, helping it to steadily lift revenue over time.

That pricing power could come in handy now, allowing Becton Dickinson to protect its margins without hurting demand. Much of its costs are for goods such as metal and glass that are subject to tariffs.

The stock fell 2.1%.

Intuitive Surgical is in the same boat. Wood said the $179 billion maker of robotic products aimed at improving outcomes of minimally invasive surgeries has pricing power, too. Sales have been growing double digits annually as the company benefits from rapid adoption of its technology.

The stock was down 2.5%.

Elsewhere, retail stocks are taking a beating, but TJX Cos. is a rare exception. Its stock rose by 0.4%.

This could indicate more outperformance to come. TD Cowen analyst John Kernan says the discount chain leads his list of retailers with strong pricing power. While TJX, the owner of T.J. Maxx, isn't a consumer staple -- it buys and resells excessive inventory from higher-end shops at discounted prices -- the company could benefit if consumers decide to focus more on cheaper items. Historically, the company has learned what each customer wants and has been able to attract them back consistently.

It can lift prices, a little bit, without forcing consumers to reduce the number of items they buy. That could be a winning combination as tariffs boost prices and slam most stocks.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 03, 2025 17:08 ET (21:08 GMT)

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