With the spread of the coronavirus, or COVID-19, the stock market experienced a significant meltdown that left people fearing the worst—recession.
When the world is filled with uncertainties and doubts, no one can blame you if you are more cautious about where you will spend or put your hard-earned money.
Since all economic recessions are different and bring about varied effects, the only thing left for you to do as an investor is to always be on your toes by being prepared.
One of the best things you can do is to invest in recession-proof stocks or those stocks strong enough to withstand even the toughest of times.
Types of Recession-Proof Stocks
Although you might find it tempting to just wait for the recession to end before you expose yourself to stocks, doing so might actually make you miss out on some excellent opportunities.
There are many companies that historically did well during the past economic downturns.
There are several types of recession-proof stocks that you can invest in to ensure that you keep your money safe as much as possible.
Even if the economy has a weak performance or a crash happens in the stock markets, medical treatments and pharmaceutical drugs will still be purchased or needed.
No matter how expensive a medicine is as long as it ensures your well-being or comfort, chances are you will look for a way to buy that medicine whatever it takes.
This is why healthcare technology companies and pharmaceutical companies are dubbed as defensive industries as they usually perform almost independently from the underlying economy’s actions.
Investing your money in pharmaceutical and healthcare businesses can increase its chances of survival as compared to other types of stocks.
Utilities tend to have partially stunted growth. Their size won’t double overnight or over several years, and they won’t turn you into a rich person. But typically, utilities pay a solid dividend and hold their value for a long time.
Most investors don’t find it hard to understand the industry of utilities, and it is not that hard to estimate the shares’ fair value, particularly when put side by side other more volatile companies such as disruptive technologies and biotech.
High-end restaurants will suffer the first blow, not fast-food chains, if the economy crumbles. Meanwhile, a widespread weakness of the economy can actually help those businesses competing on price.
During the early phases of economic correction, customers will actually increase in number in some low-price businesses.
People who used to buy their stuff from high-end shops might suddenly turn to the aisles of more affordable stores for low-cost alternatives.
Best Recession-Proof Stocks to Invest in Today
1. Johnson & Johnson
Even if the economy fails, healthcare won’t. The business mix of Johnson & Johnson is made to survive the storms.
Consumer health, medical devices, and pharmaceutical are all products that remain in demand even when the economy becomes sluggish. The explanation here is simple—expenses for healthcare are not a matter of choice. These are necessary expenses.
As the biggest healthcare company in the world, J&J managed to generate sales worth $82.1 billion in 2019 with half of the amount courtesy of pharmaceuticals.
This segment includes products covering infectious diseases, cardiovascular, neuroscience, oncology, and immunology, just to name a few.
The second biggest segment was medical devices that contributed about one-third of the 2019 sales of the company. What is even more interesting is that 26 of their products generate sales of $1 billion each.
Organic growth has also been the priority of the company instead of mergers and acquisitions, and a proof of this is the expense last year amounting to $11.4 billion for research and development.
J&J is also a believer of sharing its success with its shareholders. In fact, they increased dividends annually for the past 57 consecutive years, the last bump of which was in April 2019 at 5.6%. The company raising dividends even when there is a recession and still managing to recover quickly only proves its resilience.
The company’s newest COVID-19 program, including expedited research that will help in the development of treatment solution and coronavirus vaccines, is the perfect example of the innovative healthcare leadership of the company, a virtue that further improves its appeal as one of the best recession-proof stocks today.
Gone are the days of telecom companies’ rapid growth. However, businesses such as AT&T still make for excellent investments if a recession takes place.
A majority of the profit of the company comes from the wireless segment.
When the economy experiences some contractions, there is a lesser chance for subscription-based businesses to see a significant rise in churn rates. This is a good thing because the wireless customers of AT&T are mainly on subscribed plans.
In addition, smartphones have now become a necessity for most people.
The company is also starting to roll out faster network speeds through the 5G launch just when social distancing and telecommuting has become a must.
This, together with the efforts of using streaming to reach out to more consumers, including HBO Max, will give AT&T the opportunity to create an extremely predictable flow of cash and provide a great dividend yield.
3. Waste Connections
Waste Connections is a solid waste management company with a solid stock you can own during a recession. This is not a surprise if you consider that the amount of waste people generate isn’t dependent on the economic cycles.
This company is largely underrated given the phenomenal performance it has done for the past few years.
Waste Connections focuses on collecting, disposing, and recycling non-hazardous wastes in 6 Canadian provinces and 42 US states with over 7 million customers.
The company is also a major player in the oilfield waste management or energy and production through the R360 environmental subsidiary that has operations in the main shale plays like Eagle Ford, Bakken, and Permian basins.
The company follows a two-pronged approach when it comes to growth. First are acquisitions for tapping new markets, and second is the exclusive service provider agreements ensuring a steam income flow.
This year 2020, it is expected that the revenue of Waste Connections will have a growth of at least 6% that can go higher if acquisitions are made.
With the 15.6% increase in dividends last year, there is no denying that Waste Connections is among the best recession-proof stocks to own if a market crash occurs.
4. Procter & Gamble
Consumer behavior has had a gradual shift lately. Canned goods and other types of consumable products with longer shelf lives were the first ones to disappear in stores. Disinfectant products followed and other mundane items such as toilet paper.
Then people realized that they still need a lot of things for them to survive comfortably aside from water and food alone, and this bolstered the case for Procter & Gamble.
The PG stock is not really a good name to use as an anchor most of the time. The shares often suffer volatility and are in fact a bit shaky at the moment.
However, in the long run, you could put your confidence in the company for their essential goods that are indispensable in all households. From laundry detergent to toothpaste to toilet paper, you can be sure that Procter & Gamble has your back.
If you do decide to buy now, however, it is best to be careful since all these things about COVID-19 will make Procter & Gamble stock responsible for a solid blow to the share price.
5. Innovative Industrial Properties
While the industry of cannabis cannot be considered recession-proof, Innovative Industrial Properties, a marijuana real estate investment trust, is among the recession-proof stocks you can consider.
What makes the cannabis real estate investment trust model appealing is that it is not only low cost but also transparent.
Innovative Industrial Properties acquires processing sites and growing assets of medical marijuana and leases these out for long periods, typically up to 20 years.
Aside from earning a rental income, they also manage to pass along the modest rental increases every year that help them stay ahead of inflation.
6. NextEra Energy
It is not a secret as to how the regulated and defensive nature of utility’s businesses makes utility stocks among the best options to depend on during periods of recession.
However, it will only be possible if you have a stock that got a strong dividend and growth potential to make sure that you got a stream of income even if a downturn in the economy occurs.
One perfect example of this company is none other than NextEra Energy.
Although NextEra Energy provides electricity the conventional way to over five million customers through the company’s two subsidiaries, Gulf Power Company and Florida Power & Light, this also deals with the construction and operation of pipelines and power plants and sells electricity through NextEra Energy Resources, another subsidiary.
The main difference is that NextEra Energy Resources generates almost all of the electricity they supply using renewable sources of energy and is also the biggest electricity producer in the world that uses solar and wind. For the past few years, the company has invested over $20 billion in renewable infrastructure.
This large scale renewable energy and utility operations is what makes NextEra Energy one of the top utility recession-proof stocks to own right now.
With the company’s plan to invest $12–14 billion every year through the year 2022 on different growth projects to reduce costs, such as solar and wind technologies, earnings can continue to enjoy steady growth.
7. Sirius XM
Cash flow consistency is one of the key factors for a stock to be recession-proof, and Sirius XM, the satellite operator, can offer exactly just that.
Despite the fact that the car industry was already seeing a repeated downswing before the coronavirus turned into a global pandemic, the company didn’t really suffer a serious blow.
Part of the reason behind this is that this is mainly reliant on the revenue from subscriptions, which, as mentioned earlier, doesn’t usually suffer that much when short recessions occur.
Sirius XM recently added around 1.1 million self-pay subscribers that increased its total to about 30 million. The subscription revenue accounts for about 79% of the yearly sales of the company worth $7.79 billion.
In addition, the costs of the company for operating its satellite network remain relatively constant year after year, not accounting for royalties and talent costs. This also adds to the transparency in cash flow that makes the company of Sirius XM highly resistant to recession.
This might sound crazy, but a company like Visa that relies on consumer spending is one of the best places where you can put your money if recession strikes.
Visa, a payment processing facilitator, is a powerful force in the marketplace of the US with about 53% market share in terms of network purchase volume.
Visa’s share in the US market expanded even during the Great Recession and only experienced a modest dip for a year in the network purchase volume. This is because even if a recession occurs, consumers will still spend and might even lean more on their plastic instead of using cash.
On top of that, unlike its peers, Visa is not a lender per se. Though it can theoretically limit the company’s earning potential if the economy is in full bloom, the fact that it is not a lender keeps Visa protected from credit delinquencies once recessions hit.
The Bottom Line
The list above of the best recession-proof stocks is not in any way exhaustive since investing during economic turmoil is such a comprehensive topic.
But hopefully, this can serve as your guide on where you can place your money to help you build your portfolio even when the economy is not in its best condition.