With inflation near its highest level in 40 years, the Fed began tightening monetary policy to raise interest rates to cool down our economy. Many fear that the Fed’s actions may push us into a recession. If that is so, recession-proof stocks can be an excellent place to weather the storm with less volatility during downturns.
The US economy shrank in the first three months of 2022 at an annualized rate of 1.4%, surprising economists with the first economic contraction since 2020. If recessions are two sequential periods of negative GDP (i.e., gross domestic product), we are almost there.
There is always uncertainty in the stock market, causing stocks to rip (rise) and dip (decline). Whispers of a bear market are getting louder, with specific growth stocks, notably the tech sector, already down particularly hard. People are asking many “if'” questions like “are we closer to peak inflation?” and “has the market bottomed yet?” With high inflation, I’d recommend you look at Series I government bonds that recently boosted their annualized return to 9.62%, not bad for investing in one of the safest securities these days.
What is more certain is that the Fed is just starting to raise interest rates, and experts believe they will continue to do into 2023. According to a Piper Sandler report, the Fed raised interest rates nine times since 1961 to cool inflation, and eight times we experienced a recession, one time being a “soft landing.” Like airplanes, soft landing means touching the ground in a controlled and gradual way and avoiding a recession.
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A Bit About Our Economy
The economy runs on business cycles that alternate between economic growth and downturns. A strong economy causes high inflation, which we have now with April inflation of 8.3%, just slightly below the 8.5% in the previous month. Investors hope that inflation will drop to more normal levels with the Fed’s actions.
Higher interest rates tend to reduce consumer spending, accounting for 70% of our economy. As borrowing rates increase, consumers will hold off buying cars and homes and save more in higher-yielding savings accounts.
Where should stock investors invest in the current market? We think it is an excellent time to hold stocks that can withstand a potential recession.
Recession Proof Stocks
We think a recession’s fears will remain until we see meaningful declines in the inflation rate.
While we can’t stop a recession, we can improve our investment portfolio to better weather the market volatility by following these rules:
- Taking a long-term perspective of the market.
- Avoid panic-selling and become less emotional about day-to-day swings.
- Remain diversified in your portfolio.
- Consider adding recession-proof stocks.
Why Recession-Proof Stocks?
Nearly three-fourths of US public companies with sales greater than $50 million in annual sales experienced a decline in revenue during the last four downturns. Yet, 14% grew revenue and profit.
Recession-proof stocks, sometimes called recession-resistant, tend to hold their value compared to the overall market during weak economies compared to growth and cyclical stocks, which perform better during economic expansions. Stocks of businesses that do better in a downturn have these defensive characteristics:
- Have experienced and capable management.
- Generate stable earnings and cash flow.
- Pay consistent dividends that cushion volatility.
- Enjoy ongoing demand for their products.
- Ability to weather weakened economies or even do better in recessions.
- Have low betas below the market’s 1.0 beta, indicating relatively low volatility.
Although nothing is fully recession-proof, we believe that the 25 stocks below are attractive during economic downturns, especially to conservative investors more interested in seeking capital preservation rather than accumulating capital. The recession-proof stocks are not an exhaustive list but represent a sampling of companies that fit.
You will often find several dividend aristocrat stocks known for reliable income and dividend growth among recession-proof names. Indeed, nine stocks are part of the elite dividend aristocrat group.
Specific market sectors perform relatively better during recessions than other sectors, including health care, consumer staples, discount retail, and utility companies. We will review some of the characteristics of the sectors, and some resilient stock picks that you may want to have exposure to within your stock portfolio.
Please note that you should always do your research or talk to your financial advisor to understand each company’s fundamental analysis and earnings estimates.
The Health Care sector has pharmaceuticals, medical equipment & devices, supplies, vaccines, biotechnology, hospitals, long-term care facilities, and research. This group experiences strong demand for ongoing medical needs that people often can’t defer irrespective of the economic direction.
Many of the companies in this group have branded health care products in our homes and other drugs or devices that we are fortunate not to need but are life-saving.
Top on the list of health care recession-proof stocks are:
1. Abbott Labs (ABT) 52 Week Range: $105.36-$142.60 Dividend Aristocrat
ABT is a medical device and health care company that manufactures and sells medical devices, pharmaceuticals, diagnostics, branded & generic medicines, and nutritional products. Its best-known products are Similac and Ensure. ABT pays a dividend yield of 1.74% and has a beta of 0.74
2. Bristol Myers-Squibb (BMY) 52 Week Range: $53.22-$78.17
BMY is a top-notch global biopharmaceutical company. They manufacture and sell oncology, immunology, cardiovascular, and fibrosis products. They are known for meds like Eliquis, a drug used to prevent blood clots, and Revlimid, an oral medication used to treat multiple myeloma. BMY shares have a dividend yield of 2.86% and a beta of 0.47.
3. CVS Health (CVS) 52 Week Range: $79.33-$111.25
CVS is the largest retail drug store chain in the US. It provides pharmacy benefits and health insurance through its Aetna acquisition. Consumers will likely keep filling prescriptions and taking care of their hygiene. According to CEO Thomas Ryan, only 3% of its revenues are “affected by the economy.” CVS has a 2.23% and a 0.75 beta.
4. Johnson & Johnson (JNJ) 52 Week Range: $155.72-$186.69 Dividend Aristocrat
JNJ is a 130-year company operating three primary businesses: Consumer Health, Pharmaceutical, and Medtech. Consumer health focuses on personal health care, including skin health beauty, OTC medicines, and wound care. They have many household products like Tylenol, Band-Aid, and Neutrogena.
JNJ is one of only two companies (i.e., Microsoft) that carry a coveted AAA credit rating. JNJ has a 2.55% and a beta of 0.66.
5. Merck (MRK) 52 Week Range: $70.89-$91.40
MRK, a 130-year company, provides health solutions through prescription medicines, vaccines, therapies, and animal health. The company is known for having blockbuster drugs. MRK has a 3.26% yield with a low beta of 0.38.
6. Pfizer (PFE) 52 Week Range: $38.48-$61.71
Pfizer started as a manufacturer of fine chemicals by German cousins Charles Pfizer and Charles Earhart in 1849 in Brooklyn. They discovered citric acid, the ingredient in Coca-Cola and Pepsi. Pfizer is a focused, innovative research-based global biopharma company, manufacturing more than 350 different pharmaceuticals, including Eliquis, cardiovascular treatment, Ibrance, a cancer drug, Zeljanx, and immunology drug. PFE shares have a 3.22% dividend yield, carrying a beta of 0.75.
7. Walgreens (WBA) 52 Week Range: $41.80-$55.96
Begun in 1901, WBA is the second largest pharmacy store chain behind CVS Health. The company specializes in filling prescriptions, health & wellness, has care clinics, and provides specialty pharmacy solutions. They have a 4.42% yield and a beta of 0.52.
Consumer staple companies manufacture products people need in their homes, including food, beverages, household, and personal hygiene products. It may also include alcohol and tobacco, whose addictive features often lead to continued demand when higher stress is due to job loss. During the Great Recession, alcohol sales grew more than 9% in 2008.
8. Kimberly-Clark (KMB) 52 Week Range: $117.32-$145.79 Dividend Aristocrat
KMB ‘s primary segment is Personal Care products, paper-based consumer products found in most households. They manufacture and market disposal diapers, baby wipes, feminine and incontinence care, consumer tissue, and paper such as Kleenex and Scott. They have a 3.35% yield and 0.37 beta.
9. Kroger (KR) 52 Week Range: ($35.91-$62.78)
Founded in 1883, Kroger is the third largest American supermarket retail chain behind Walmart and Amazon in 35 states and the District of Columbia. The company is one of the largest private employers in the US. They have a 1.54% dividend yield and a beta of 0.48.
10. Coca Cola (KO) 52 Week Range: $52.28-$67.20 Dividend Aristocrat
KO first distributed its soft drink, Coca-Cola, as medicine in the 1880s. The company’s beverage products have Coke in sparkling flavors, sports, coffee, and tea; nutrition, dairy juice, and plant-based. Besides Coke, notable brands are FUZE TEA, Minute Maid, and Powerade. KO has a 2.74% dividend yield and a beta of 0.58.
11. PepsiCo (PEP) 52 Week Range: $143.58-$177.62 Dividend Aristocrat
PEP, the company, began in 1965, though the creation of the Pepsi beverage goes back to 1898. It is an American multinational company that manufactures and distributes convenience food and snacks. PEP’s brands are well known and include Pepsi, Frito-Lay, Cheetos, Quaker Oats, and Gatorade.
12. Proctor & Gamble (PG) 52 Week Range: $131.94-$165.35 Dividend Aristocrat
PG provided branded consumer packaged goods in five areas: Beauty, Grooming, Health Care, Fabric & Home, Feminine & Family Care. Known for many iconic household brands, including Mr. Clean, Tide, Bounty, Head & Shoulders, and Old Spice. Its dividend yield is about 2.36%, with a beta of 0.39.
13. Philip Morris International (PM) 52 Week Range $85.64-$112.48
PM’s history goes back to a London tobacconist, Philip Morris, who had a shop selling tobacco and cigarettes in 1847. PM is an American-Swiss company manufacturing and selling cigarettes and smoke-free products. Its best-known brands are Marlboro and Chesterfield. It has a dividend yield of 5.04% and a beta of 0.67.
14. Diageo PLC (DEO) 52 Week Range: $175.46-$223.14
DEO is a beverage alcohol company. They are a significant spirits distributor and the world’s largest producer of Scotch Whisky. Besides Scotch Whisky, they carry Vodkas (e.g., Ketel One) and Rum (Don Julio). As PM, it is more like a sin stock than a recession-proof stock. Sin stocks are shares of companies that operate in alcohol, tobacco, gambling, cannabis, weapons, and adult entertainment. I deeply understand that many investors won’t own these stocks for their unethical or immoral activities.
Its dividend yield is around 2.16% and a beta of 0.66.
Discount Retail Outlets
Discount retail stores sell merchandise at more significant discounts to price-conscious consumers looking to save money during an economic downturn. As interest rates rise, consumer spending decreases, and consumers look for more bargains. Apparel and specialty retail are not part of this category and include recession proof stocks such as:
15. Walmart (WMT) 52 Week Range: $132.01-$160.77 Dividend Aristocrat
Sam Walton founded WMT in 1962, and it is among the most prominent American companies as a private employer and by revenue. The company operates Walmart, its leading discount retail supercenter stores, and Sam’s Club, its membership warehouse business. WMT has a 1.50% dividend yield and a beta of 0.50.
16. Costco (COST) 52 Week Range: $371.11-$612.27
COST operates membership warehouses offering branded and unbranded household goods, groceries, and merchandise in various categories at discounted prices. COST has a 0.71% and a beta of 0.72.
17. Dollar General (DG) 52 Week Range: $185.15-$262.20
Before changing its name to Dollar General, the company started as a family-owned business. DH is an American variety store chain known for its low-priced household merchandise and deals, similar to other dollar stores (e.g., Dollar Tree). It has a 0.97% yield and a beta of 0.52.
18. Home Depot (HD) 52 Week Range: $278.66-$420.60
HD is the largest home improvement retailer in the US, catering to homeowners, builders, and do-it-your consumers engaged in home projects. Supercenters have the best assortment of tools, construction products, appliances, and services. Their shares have a 2.61% dividend yield and a beta of 0.97.
19. TJX Companies (TJX) 52 Week Range: $55.47-$77.35
TJX is an off-price apparel and home fashion retailer and includes its flagship TJ Maxx (in the US), TK Maxx (outside of the US), Marshalls, HomeGoods, and HomeSense. The company is an American department store chain, selling well-known brands at prices lower than other major stores. TJX shares have a dividend yield of about 2.11% and a 0.89 beta.
20. Target Corp. (TGT) 52 Week Range: $184.00-$268.98 Dividend Aristocrat
TGT is an American big box discount store chain selling general merchandise, including food, grocery, dairy, beverage, and frozen items, through its stores and digital channels. TGT shares have a 1.64% dividend yield and a beta of 0.94.
Utilities include water, gas, and electric companies offering services with consistent demand during any economy and have long been recession-proof stocks. Waste collection companies have similar utility-like traits. Historically, telecom companies were part of this sector, but they are less so by diversifying into other businesses, notably media.
21. American Water Works (AWK) 52 Week Range: $142.63-$189.65
AWK is an American public utility founded in 1886 but did not have its IPO and NYSE listing until 2008. The company is a water and wastewater utility, owning utilities that provide water to residential, commercial, industrial, public authority, and fire services. Its dividend yield of about 1.83% and a beta of 0.46.
22. Brookfield Infrastructure (BIPC) 52 Week Range: $56.89-$80.60
BIPC has a diversified portfolio with a global network of infrastructure assets that include utilities, transportation, energy, pipelines, power lines, data centers, and cell towers. Its shares have a dividend yield of 3.16% and a beta of 0.75.
23. Duke Energy (DUK) 52 Week Range: $95.48-$116.33
DUK is an energy company with electric utilities and infrastructure, natural gas utilities, and commercial renewables operating in several Southeast states. They provide retail electric service through the generation, transmission, and sale of electricity. DUK shares yield 3.62% and have a beta of 0.33.
24. NextEra Energy(NEE) 52 Week Range: $68.52-$93.73 Dividend Aristocrat
NEE is an electric power and energy infrastructure. It operates independent and renewable energy through subsidiaries, including its most significant sub, FPL (Florida Power & Light), which provides rate-regulated electricity in parts of Florida and Gulf Power. Its NEER subsidiary operates electricity generation in wholesale markets.
25 Waste Management (WM) 52 Week Range: $136.97-$170.18
WM provides waste management environmental services in North America. Services include collection, transfer, disposal, recycling, and resource recovery. WM shares have a dividend yield of around 1.65% and a beta of 0.80.
When the stock market gets bumpy, don’t panic. It may mean you need to review your portfolio strategy and make some changes. Consider recession-proof stocks for exposure to more resilient companies in weaker economies.
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With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.