Beaten-Down Stocks Poised for a Comeback as US Economy Faces Recession Risks

The US economy may not be heading into a full-blown recession, but rising pump prices due to tensions in Iran could push consumers and the economy over the edge. Despite this uncertainty, there are several beaten-down consumer stocks that could outperform in a recessionary environment.

One such stock is Netflix (NFLX), which has seen its service become more affordable compared to the value it provides. With revenue growing 13% last quarter and adjusted EPS rising 11%, Netflix remains a solid growth opportunity, both by adding new subscribers and shifting towards advertising through live events and lower-cost tiers.

Netflix's valuation has been brought down to around 21 times analysts' 2026 estimates, making it a recession-resistant stock with still solid growth at a reasonable valuation. Additionally, the company's push into ad-supported tiers is still in its early stages, reducing the impact of any general pullback in advertising.

Walmart (WMT) has historically performed well during recessions and investors can currently scoop up its shares at around 15% off from their highs. The company's scale and buying power allow it to offer the lowest prices, benefiting from the consumer trade-down effect during a tough environment.

Over the past few years, Walmart has done a good job of attracting more affluent shoppers through convenience and high-end meat and produce offerings. Its $98-a-year Walmart+ membership has been a huge driver of attracting these customers, making it less vulnerable to recessionary pressures.

Chewy (CHWY) shares have been hammered over the past year as the pet e-commerce company has been cautious about the consumer environment. However, nearly 85% of Chewy's sales come from its autoship program and 67% of its sales last quarter were of consumables and 17% from pet healthcare products.

The company has also been doing a good job of expanding its EBITDA margins through automation, AI, sponsored ads, pet medication, and private label. This is a generally low-margin business, so all the gross margin expansion and SG&A deleveraging it sees can have a big impact on its profitability.