Recession Proof Stocks
Are you worried about a recession destroying your portfolio? In times of turmoil, people worry about their investments, money, and their financial futures. Are you risk averse and seek out more conservative stocks?In times of trouble like these, some companies can bring about stability. These companies are part of a group of recession proof stocks to help you ride out the rockiness of the recession.
Recessions happen within the market. The last one was during the COVID-19 pandemic that hit in March of 2020. In the 2000s, we have faced three different recessions including the dot-com boom the crash, the sub-prime mortgage crisis, and COVID-19. Each one comes with challenges, so make sure you are prepared for a downturn.
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Industries That Do Well in Recessions:
Recessions tend to bring uncertainty to most investors. They do not know when they will end or when they will start.
With much loss of jobs, people go to buying much cheaper things. So the industries that will do well are more affordable retailers that sell consumer staples or even discount retailers.
Do-it-yourself projects are something that starts to get done more often. People realize with money tight it is easier for them to save by doing home improvement projects themselves. So people start shopping at home repair shops and DIY retailers like Lowe’s.
Then, there are some industries will always have sales, like the regular around-the-house personal products that everyone uses, from toothpaste to cleaning products. Some industries like the defense industry is little affected by recessions since governments tend to spend more with stimulus.
The emergence of e-commerce has helped many industries thrive during the COVID-19 pandemic, with is something to consider with companies.
With these industries in mind, here is a list of 13 recession-proof stocks that will keep going.
13 Recession Proof Stocks
1. Walmart (WMT)
Walmart is that company everyone knows about it. They have low prices and everything people may want in the world.
When a recession hits, Walmart tends to do better. This is because the company’s prices are low and therefore people would prefer to shop there. It saves them money, and they leave happy to be on a budget.
After the 2008 recession, Walmart did not have much of an online presence. So they started to gear up their e-commerce. Then, during the pandemic, Walmart could capitalize on the work they had put into their e-commerce. As a result, the company’s online sales grew more than 79% in the fiscal year of 2021, which ended on January 29th.
During the crash in March 2020, Walmart’s stock price only dropped 6%. Since the bottom of the crash, it has risen over 27%.
The next great thing about Walmart is that they continually have dividend growth over the years. They have increased their dividends for 48 years in a row making the Walmart a Dividend Aristocrat. So if you are looking for a stock that will stay strong in any recession, it is WMT. The company will pay a dividend, and people will continue to shop there.
2. Target (TGT)
We just talked about the low prices of Walmart, and now it is time to talk about Target. Target is that more upscale version of Walmart. The staff is kind, the prices are reasonable, and you have a better feeling of shopping here although the prices are not as low.
Target, like Walmart, beat the recession of 2008, and now they have put in the work into their online presence as well. The company invested in their online sales. The first three quarters of 2020 sales rose 10.8%, 24.3%, and 20.7%, respectably.
The S&P 500 fell around 31% in March of 2020, but Target’s stock price only fell 28%. Since that bottom, Target’s stock price has risen 151%. People need things, and they want to shop at Target. This is an excellent recession proof stock that will do well in the long run.
Since 1972, Target has increased its dividend every year making Target a Dividend King. That brings about a feeling of safety and reassurance to the shareholders. With such a long tradition with a dividend, the shareholders know that their money is safe holding some Target stock.
3. Pepsi Co. (PEP)
We often hear about Coke Cola, but Pepsi Co. is also set up to do well in a recession. When people do not have as much money, they will cut back on many things. Buying soft drinks is probably one of them. However, Pepsi Co. is not just a soft drink company. They also own Fritos/Lays that gives them a more considerable safety margin.
During the pandemic, one item that took off was cocktail mixers. As people were stuck at home, they no longer could go to bars. So the cocktail mixers sold by Pepsi Co. rose by 36% in 2020 alone. Sales of salty snacks and other items also rose.
As a shareholder, you will also be pleased to know that Pepsi Co. has consistently raised its dividend. From 2008-2010 Pepsi had an average growth of 6% in sales, which allowed them to increase their dividends by 11.3% from 2007-2011.
4. Lowe’s (LOW)
Due to recessions, people are more likely to start doing more DIY projects at home. This gives big box stores and hardware stores more business. Lowe’s is a company that people began to flock to for doing home improvement projects.
The pandemic caused many people to be stuck at home. As a result, home projects increased for households. The revenue for Lowe’s rose 23.5% in the first nine months of 2020. In the 4th Quarter of 2020, online sales boomed by 106%.
Shareholders will be happy with their dividends as well. Lowe’s being a Dividend King, continues to increase its dividend every year for the last 59 years.
5. McDonald’s (MCD)
With less money in people’s pockets, they stop going out to eat. At this point, people are looking for cheaper options like McDonald’s.
In 2008, McDonald’s opened up 600 new restaurants. As a result, the sales of their products were higher in 2008 than they were in 2006 and 2007. This makes McDonald’s a great company to hold to when the economy sounds and a recession takes hold.
As a shareholder, you will know that their dividend has continued to increase every year for the last 46 years making McDonald’s a Dividend Aristocrat. Even during the COVID-19 pandemic McDonald’s raised the dividend when other fast food company dividends were at risk.
6. Rollins (ROL)
Rollins is a company that sells pesticides. You have probably heard of Orkin, which is a part of the Rollins Corporation.
In two decades, Rollins has had uninterrupted growth. They are now the largest pesticide company in the U.S. and possibly the largest in the world. Rollins owns 20% of the pesticide market in the U.S.
The great thing about this company is that it has cash flow. With little to no debt, if there were a downturn, Rollins would have the cash flow to continue to withstand any recession. This cash can also help them to optimize and continue to grow and expand. Their growth continues.
Rollins did cut the dividend during the COVID-19 pandemic, which was disappointing. But the cut was short lived and Rollins’ dividend recovered.
Recession proof stocks are the ones that will not go away. So Rollins should be around for a long time.
7. Hormel Foods (HRL)
Hormel Foods is a great company that is always trying to invest and create. The company usually has no debt to their name. While other companies are swamped in debt, Hormel has enough cash to withstand most any downturn.
Hormel’s R&D department is always looking for ways to diversify. For example, they are a protein company. So they will make fake meat, plant-based meat, and any other type of protein.
Nearly half of the stock is owned by Hormel Foundation. The company works on trying to continue to grow its income and dividend each year and Hormel is a Dividend King. You will love to add that consistent and growing dividend to your portfolio.
8. Costco (COST)
You will get more for your money buying things in bulk at Costco.
Sales grew by 9% in 2020. Operating income increased by 19% in 2020. As 2021 comes in, Costco’s growth has continued to rise. In May, the company reported a 22% growth year on year on sales. As the country opens up, customers are starting to flood the stores.
E-commerce is bringing about a massive surge in Costco’s sales numbers as well. 38% of their sales are now coming from their online presence. Online sales have grown 66% over the past year.
Costco’s stock price only fell 8% during the COVID-19 market crash. Since the bottom of the market, Costco’s stock price is up over 35%. Costco is certainly a stock you should look at for being recession proof. People will continue to try to save money and buy in bulk. Costco has been working on its online presence to help them in the long run.
9. Nike (NKE)
Nike is a store that goes by the motto “Just Do It!” This is what they did while another recession hit last year. The company played offense instead of defense and doubled down on their strategy of increasing their online market.
Sales in the last year soared 141% in North America alone. Moreover, their revenue has gone up 96% since a year ago.
Nike’s sales were bolstered by their sales in China during the pandemic, but as the pandemic has subsided, all the other markets have opened up. So the company is now making sales everywhere. Nike made moves to be more global, and those bets are paying off.
This is a stock that has stayed consistent throughout the pandemic, and the moves the company has made have paid off in the long run.
10. Procter & Gamble (PG)
Procter & Gamble stock is a Dividend King. The company has raised the dividend each year for 64 years straight. Proctor & Gamble is also a company that has been around for 183 years.
When a bull market is roaring, most people are going after all the growth stocks, but these blue-chip dividend stocks come out shining as a recession hits. This is Procter & Gamble.
They make the products we will use every day like Head and Shoulders, Crest toothpaste, Tampax, and many other everyday products.
This is considered a “dream” for dividend investors. The company consistently has the cash flow to continue to increase dividends. The consistency of 64 years in a row is remarkable. You can buy the stock, forget about it, and let compound interest do its magic on it.
11. AutoZone (AZO)
AutoZone is a safe defensive stock that you can get into during recessions. When people try to spend less, they will buy fewer cars, which means people will spend more money fixing their vehicles. This is a major plus for Autozone.
In the last ten years, Autozone has grown. The company has opened up about 200 new stores and is expanding into Mexico and Brazil. It is the largest auto parts store in the U.S.
As an investor, you may want to know what Autozone does with all their cash flow. The company conducts stock buybacks to help return cash to their shareholders. The company’s P/E is currently less than their competitors, which is a good thing.
12. Lockheed Martin (LMT)
As a defense contractor, you will not see Lockheed Martin disappear. On the contrary, during each recession, the defense budget has increased over time. With increased spendings means more revenue for companies like Lockheed Martin.
70% of the company’s business comes from the U.S. government. As tensions with other countries start to happen, then business starts to increase.
The company has been trading at about 17X earnings on average, slightly above the S&P500 average. Lockheed has a dividend that grows every year for the past 19 years making the stock a Dividend Contender. Revenues grew through the 2008/2009 financial crisis and the COVID-19 recession.
Lockheed Margin has grown its dividend by 10.39% annualized for the last 5 years for those dividend growth investors. The cash flow is excellent, and the world is faces continuing conflict, so this stock should do well for many years to come.
13. Amazon (AMZN)
One of the best recession proof stocks is Amazon. I know Amazon is a massive company, but it has survived three recessions and came out as the top online retailer as well. As recessions happen, Amazon thinks about ways to do things better and become more efficient. With significant diversification in cash flow, Amazon has now set itself up to withstand any recession.
Loyalty is enormous with Amazon. This has been seen with the prime membership as retention rates of one year are 93%. For accounts that have prime for more than two years, the retention rate is closer to 98%.
In economic downturns, people start to cut things out of their life like cable TV. If you are already a Prime member, you have access to Amazon prime video giving you access to TV and movies without paying extra for cable TV.
As an investor, you must look at what happens in economic downturns. If growth were to stall for Amazon, they would have enough cash flow and options from their diversification to keep them afloat in a recession. Amazon is truly a recession proof stock.
Final Thoughts on Recession Proof Stocks
Recessions will continue to happen in our lifetime. I have seen the dot-com boom and crash, the Great Recession, and even the tiny recession of 2020 during the COVID-19 pandemic. When recessions happen, people are left with less money. So they start living more stingy. With their money, they get more defensive, and at that point, you need to look at companies that will be unaffected by the lack of spending power consumers have.
Big companies that sell cheaper everyday items will come out ahead like the Walmarts and Targets of the world. People will always need to buy everyday items. Defense companies are little affected by recessions as government spending usually increases.
Those companies with a significant online presence can take advantage of people not wanting to go out shopping. If companies have invested in this like Nike and Costco, then they have opportunities to capitalize.
Look at companies with excellent cash flow as well. For example, Hormel foods and Rollins have excellent cash flow, which allows them not to be burdened by debt, and gives them a cushion during market downturns. These companies will be the ones that rise from the ashes even stronger when recessions end and growth returns.
These are just 13 different companies that have an excellent reputation. Do some additional research to figure out what is best for your situation.
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This article, written by Steve Cummings of The Frugal Expat blog, originally appeared on Your Money Geek and has been republished with permission.
Disclosure: The author of the article is long some of the stocks discussed above.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.