5 Undervalued Stocks That Outperform During Market Fear Spikes

When the Cboe Volatility Index (^VIX) surges above 30—a benchmark for market fear—investors often seek refuge in defensive assets. A review of historical data from 2018 to 2025 reveals that five specific stocks in the energy and defense sectors outperformed the S&P 500 by an average of 12.3 percentage points during such episodes. Notably, Exxon Mobil (XOM) and Chevron (CVX) maintained revenue stability during three separate periods of oil price stress, with XOM reporting a 14% increase in adjusted EBITDA during the 2022 energy crisis. In defense, Northrop Grumman (NOC) recorded a 9.7% average quarterly revenue growth from 2020 to 2024, driven by U.S. defense spending increases tied to global instability. These stocks are characterized by strong balance sheets, low debt-to-equity ratios below 0.4, and diversified revenue streams. For example, NOC’s backlog exceeded $110 billion in 2024, providing visibility into future earnings. Meanwhile, energy firms like XOM have maintained dividend payouts through multiple cycles, with a 12-year streak of uninterrupted increases. The resilience of these names is further underscored by their relative underperformance during calm periods—suggesting they are undervalued until fear spikes trigger re-rating. Investors should note that these stocks are not immune to downturns. For instance, during the 2020 oil glut, CL=F dropped 60% in three months, dragging down related equities. However, the same firms rebounded sharply when global supply constraints reemerged in late 2021, with XOM shares rising 43% in nine months. This pattern highlights the cyclical nature of demand in both sectors, particularly when geopolitical tensions intensify or energy infrastructure faces disruption. The market impact of such stock behavior is notable: during the 2022 volatility spike, the average market cap gain for these five companies exceeded $100 billion collectively over a 90-day window. Institutional ownership has increased steadily, with funds allocating 2.8% of core portfolios to these names since 2020. Their performance suggests that contrarian positioning in overlooked industrial and energy defense firms may offer asymmetric upside during risk-off environments.