With fears rising regarding a global economic slowdown, investors should consider recession-resistant stocks to batten down the hatches. Fundamentally, one of the biggest concerns that analysts cited centers on global central banks tightening their money supply. Reduced liquidity almost certainly signals deflation if left unchecked, which translates to reduced business activity. That’s going to be a killer for growth-oriented investments.
On the other hand, it may open up a cynical opportunity for so-called recession-resistant stocks to buy. These enterprises typically command well-established and relevant business models that cater to overriding needs. They’re not the sexiest market ideas to be sure and thus don’t offer extreme growth potential. However, they can offer dependability and stability, which may carry a higher premium given the circumstances.
If anything, your portfolio should be protected from the wild vagaries of the present market cycle. As well, if monetary fluctuations occur, recession-resistant stocks may be able to insulate your wealth. Therefore, every investor should at least give some thought to the below contextually compelling ideas.
|PG||Procter & Gamble||$141.74|
One of the most iconic brands in American business, Coca-Cola (NYSE:KO) offers a classic case for recession-resistant stocks to buy. During the aftermath of the Great Recession, many analysts cited KO as a name investors can trust. No, it’s not the most exciting company in the world. However, the brand is integrated into the fabric of society.
For me, Coca-Cola drives plenty of value and confidence because of its cheap pick-me-up narrative. During decidedly bullish economic cycles, consumers usually won’t think twice about popping into their local coffee shop franchise to order an overpriced cup of Joe. However, with recessionary forces at play, consumers must tighten their belts. That’s going to benefit Coca-Cola.
On the financials, investors can bank on KO’s strong profitability metrics. For instance, its net margin stands at 23.4%, ranked higher than over 94% of its rivals. Also, the company carries a return on equity (ROE) of nearly 43%. In contrast, the industry median is only 10.7%.
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Fundamentally, the narrative for Kroger (NYSE:KR) as one of the recession-resistant stocks to buy sells itself. It’s a cynical topic but let’s be real. Humans require a minimum amount of calorie intake. No calories and liquids and you’re not getting too far in life. Therefore, households have little choice but to sacrifice everything else before they cut into the grocery budget.
Another factor that helps boost KR as one of the recession-resistant stocks to put on your radar centers on the trade-down effect. During a bull market, people feel good about themselves. So, they might treat themselves (and their loved ones) to fancy dinners. However, with the specter of a global recession on the horizon, those fancy dinners become fast-food takeout. Then this category trades down to microwave dinners.
You get the point. Plus, Kroger enjoys some intriguing financial metrics. For instance, its ROE stands at nearly 26%, which reflects a high-quality business. Also, its price-to-sales ratio is 0.24 times, lower than the industry median of 0.5 times.
Home Depot (HD)
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A dependable company when circumstances go awry, Home Depot (NYSE:HD) just happens to be built for economic and literal storms. Further, the organization proved its benefit to the public, staying open for longer than most other businesses during the initial wave of the coronavirus pandemic. Frankly, I don’t think Home Depot gets enough credit for this gesture.
Now, as one of the recession-resistant stocks to buy, Home Depot benefits from cynical realities. Basically, Murphy’s Law doesn’t care if a recession is ongoing or not. Sometimes, it seems like Murphy’s Law becomes more prominent when a recession or some other crisis materializes. While it’s not a panacea for all mishaps, you can depend on Home Depot to carry the products that will get you out of your particular jam.
Financially, investors will likely take great encouragement from the company’s income-statement metrics. Specifically, its operating and net margins of 15.3% and 10.9%, respectively, rank among the underlying sector’s elite.
Procter & Gamble (PG)
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A relatively easy choice for recession-resistant stocks to buy, Procter & Gamble (NYSE:PG) benefits from an indelible business model. Manufacturing several household goods, Procter & Gamble combines relevancy (through addressing basic needs) and brand awareness. To be fair, consumers can trade down to generic alternatives. However, circumstances will need to be truly dire before we get to that point.
Interestingly, though, PG’s boring nature as one of the recession-resistant stocks didn’t spare it from volatility. So far this year, shares slipped nearly 14% in equity value. That’s not too far removed from the benchmark S&P 500, which shed almost 17%. However, PG garnered momentum recently, gaining over 2% in the trailing five days. It’s also up over 10% in the trailing month.
Financially, the company benefits from reasonable stability in the balance sheet. For instance, its Altman Z-Score is 5.23, reflecting a very low bankruptcy risk. Also, it features strong profitability metrics, such as a net margin of 18% which ranks above nearly 92% of the competition.
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Representing the number one commercial auto insurer in the U.S., Progressive (NYSE:PGR) commands significant brand awareness. Thanks to its memorable fictional salesperson character Flo, Progressive has become ingrained when it comes to auto insurance. And that’s significant because it enables the company to muscle out other recession-resistant stocks in this insurance subsegment.
While it’s a cynical talking point, we’ve got to face reality: Progressive enjoys a hostage audience. According to the company’s website, every state in the Union requires auto insurance except New Hampshire. Even then, those that decide to go without coverage must meet the state’s financial responsibility requirements. Honestly, it’s just better to get auto insurance.
Another cynical argument for PGR as one of the recession-resistant stocks to buy? It’s getting more dangerous out there on America’s roadways. Although you can’t control what others do, you can at least protect yourself. Given that everyone learned a lesson that stuff can happen at any moment, PGR makes an excellent case for itself.
Five Below (FIVE)
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Should an economic downturn materialize, investors will want to target Five Below (NASDAQ:FIVE) as one of the recession-resistant stocks to buy. It comes down to the trade-down effect. When financial pressures materialize, consumers naturally start to tighten their spending habits. However, they don’t go from one extreme to another. Rather, they taper down their expenditures gradually.
Fundamentally, that’s what I like about Five Below. Unlike a pure discount-dollar store, Five Below mostly features products priced at $5 or less. Further, the company provides a small selection of products that range from $6 to $25, enabling greater consumer choice. It also means that the stores feature a more upscale ambiance which can certainly help the shopping experience.
Financially, Gurufocus.com makes a case that Five Below represents a modestly undervalued investment. Backed by a decently stable balance sheet, Five Below features excellent revenue growth and profit margins that rank in the sector’s top tier.
Robert Half (RHI)
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To be clear, the inclusion of Robert Half (NYSE:RHI) as one of the recession-resistant stocks will likely generate controversy. As an employment staffing agency, an argument exists that Robert Half and its ilk fleece the flock. After all, job applicants can apply directly for the positions they want. And with employers apparently desperate for workers, RHI seems irrelevant.
Still, the process of finding quality workers represents a major hassle. As well, so much can go wrong if an enterprise hires a person not qualified for the position. In addition, you have other factors (such as personality mismatches) that can cloud an organization’s ambiance. For efficiency’s sake, many companies outsource the hassle of hiring to professional staffing agencies.
Also, keep in mind the current circumstances. With the Fed continuing to attack the inflation rate through higher interest rates, the strategy is having a major effect. Several companies, particularly those tied to big tech, are implementing big layoffs. Cynically, then, Robert Half could see an influx of demand, making RHI one of the recession-resistant stocks to consider.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.