Even in a Recession, Divergent Stocks Will Prosper

Stocks to buy

[Editor’s note: “Even in a Recession, Divergent Stocks Will Prosper” was previously published in May 2022. It has since been updated to include the most relevant information available.]

Everyone is concerned about a recession these days. And who can blame them? Inflation’s been running at decade highs. A war is raging on in Europe. We’ve been dealing with soaring gas and food prices. There are rapidly rising interest rates and a crashing stock market. The Fed is on a super-hawkish rate-hiking path. And many fear that its tightening will push the U.S. economy into a deep downward spiral.

Previously, investors were fearful of high inflation. But after last week’s Fed meeting and subsequent press conference, those fears have shifted. Now investors are driven by fear of an incoming recession.

But what if I told you that a downturn has already arrived?

That’s right. The U.S. economy may already be in a recession.

That’s a scary thought. You’ve probably been worrying about a recession that the mainstream media has said won’t come until 2023. But it may have already arrived — and it could send the stock market spiraling lower.

Though, here’s the thing. In every bear market, certain stocks tend to soar. Thanks to a rare phenomenon called “divergence,” we’ve uncovered a special group of stocks that tend to soar during downturns. And they do even as the broader averages crash.

These are the stocks you need to be buying today. Forget index investing. It’s time to ditch the S&P 500 and Dow Jones. Buy divergent stocks to survive — and even thrive — in a bear market.

Otherwise, you could lose 20% or 30% in a hurry.

A Recession May Have Already Arrived

Everyone seems worried about a recession that’s set to materialize in 2023. But it increasingly appears that it may have already arrived.

The technical definition of a recession is two consecutive quarters of negative gross domestic product (GDP) growth. Well, as of August, we hit that benchmark. Indeed, the U.S. is in a technical recession.

Recent economic data has been very weak. The 10-year Treasury yield is just about as overextended as it’s ever been. Eurozone economic activity is rapidly contracting, and it’s very widespread, elevating concerns about a global economic recession. The Pound sterling hit a new 37-year low against the dollar. Home sales keep falling. Consumer spending is slowing. And sentiment is at lows comparable to previous U.S. recessions.

Meanwhile, the Federal Reserve seems married to an aggressive rate-hike cycle. And that will only sap more energy out of an already stalling U.S. economy.

Of course, that’s scary. Recessions are never good. And they tend to be very bad for the market.

But not all stocks drop during these downturns.

Divergent Stocks Soar During Recessions

As many of you know, we’ve been researching a rare market phenomenon called a “divergence” for several months now.

This anomaly only emerges about once a decade, during periods of peak market volatility. And it usually only happens in high-quality growth stocks that can grow rapidly, even during a recession.

At a high level, what tends to happen during a divergence is this:

  1. Investors start to panic about a recession.
  2. Stocks begin to drop on those fears.
  3. Most keep dropping because as the economy slows, those holdings suffer from declining revenues and earnings, too.
  4. Certain high-quality growth stocks don’t suffer from declining revenues and earnings. Instead, those fundamentals keep growing at a rapid rate because their growth drivers are so powerful that they’re “recession-proof.”
  5. This results in a massive divergence between the price of those stocks and the relative revenues and earnings.
  6. This divergence always corrects itself. And that sends those high-quality growth stocks significantly higher within a short time — even if the market keeps crashing.

This is a phenomenon that has repeated time and again throughout U.S. stock market history.

A Look Back to Past Recessions

For reference, let’s look at the last two major economic recessions.

Back in 2001, the U.S. economy slipped into a recession on the heels of the dot-com crash. During this time (illustrated by a gray highlight in the chart below), the stock market struggled. From early 2001 to late 2002, the S&P 500 dropped 24%, while the Dow Jones fell 16%. But over that same stretch, certain divergent stocks that grew revenues rapidly right through the recession (like Amazon (AMZN), eBay (EBAY), and F5 Networks (FFIV)) saw stock prices soar. While the S&P 500 dropped deep into a bear market, those stocks basically doubled!

Fast-forward to 2008-09. The U.S. economy was reeling from the housing crash and financial sector meltdown. We were deep into a recession. From late 2008 to early 2009, the stock market struggled. The S&P dropped 14%. The Dow fell 16%.

Yet, over that exact period, certain divergent stocks were able to sustain rapid revenue growth. Those stocks — like Amazon, Netflix (NFLX), and Booking.com (BKNG) — soared. Booking rose 50%. Both Amazon and Netflix popped more than 70%.

By now, you see the pattern.

The divergent stocks that we’ve discovered are the perfect recessionary medicine for your portfolio. During crashes, they tend to soar — while the rest of the market collapses.

Indeed, stocks are collapsing, and a recession may have already arrived. You owe it to yourself to at least check out some divergent stocks.

The Final Word on Combatting a Recession

We sit on the verge of a very pivotal moment in U.S. stock market history.

I think we may already be in a recession. I think the broader market could struggle over the next few weeks to months. And I think investors who ignore this divergence phenomenon could lose a lot of money.

But… for those who listen to and capitalize on this divergence, the potential returns could be enormous.

Our models indicate realistic, back-tested potential gains of 200%-plus over the next 12 months alone.

So, the way I see it, you have three choices:

  1. Stay invested in index funds and exchange-traded funds, and risk losing money as the markets potentially struggle amid a recession.
  2. Cash out and put your money in a savings account, where inflation will eat your nest egg.
  3. Buy divergent stocks, and score 3X returns in 12 months, beating both a recession and inflation.

I think the right choice is obvious. But, of course, I’ll leave it up to you to seek out more about Divergence 2022.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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