Your Recession Playbook: Avoid These Stocks, Buy Ross Stores

Although Cowen & Co is not yet fully convinced that the U.S. is falling into a recession, analyst Oliver Chen released a new report this week helping investors prepare for a recession scenario. Chen took a look back at how retail sector stocks performed during market downturns in 2007 and 2001 to identify the safest and riskiest retail stocks to own during a recession.

“We believe stocks that appeal to the low-end consumer and have minimal global exposure appear well-suited to weather an economic downturn,” Chen explains. Low-to-mid consumer stocks showed relatively little correlation with the S&P 500 during the past two U.S. recessions.

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In addition, Chen found that luxury, apparel and global retail stocks have been hit the hardest. Luxury items are typically one of the first indulgences that consumers turn away from during times of economic hardship.

In terms of specific stocks, Chen warns against owning names like Tiffany & Co. (NYSE: TIF), Sothebys (NYSE: BID), Cullen/Frost Bankers, Inc. (NYSE: CFR) and Restoration Hardware Holdings Inc (NYSE: RH) during a recession.

Instead, Cowen recommends retail investors play it safe with top recession pick Ross Stores, Inc. (NASDAQ: ROST) or other low-to-mid consumer stocks like Wal-Mart Stores, Inc. (NYSE: WMT).

Disclosure: the author holds no position in the stocks mentioned.