Recession-Proof Stocks: Best Stocks to Buy During a Recession

General Mills’ legacy, characterized by an array of iconic brands, enthralls its global consumer base. With a strong historical performance showcasing strong single-digit sales and profitability metrics, General Mills emerges as an excellent wealth multiplier for its investors. It delivered nearly a 37% return on its stock over the past half-decade, which speaks volumes about its prowess. Navigating the market’s cfa study plan waters became trickier post the stellar first half of 2023; August brought a pause to equities, influenced by China’s economic hiccups, Ukraine’s unrest and mixed corporate earnings. However, consumer stocks, known for their resilience during turbulent times, stand as reliable bulwarks against market storms. With that said, here are three of the most attractive consumer stocks to buy on the dip.

At a forward earnings multiple of 23.40, KO stock appears attractively priced, particularly when one factors in its consistently strong financial showings, adept pricing strategies and unwavering demand. Albertsons (ACI) is a food and drug retailer with over 2,200 stores in 34 states under brands like Albertsons, Safeway, Jewel-Osco, Shaw’s, United Supermarkets and more. The company declared a dividend of $0.12 per share, paid on Aug. 10 to shareholders of record as of July 26 of this year. Currently trading at $26.99, ACI has a 2.7 “buy” recommendation rating and a one-year price target of $33.28. These stocks and funds tend to be less volatile and suffer minimal losses during recessions as they generate ongoing income for investors. And because they provide an income stream alternative to bonds, they tend to do well when bond yields dip — such as when central banks lower interest rates to stimulate the economy during recessions.

In the second quarter ended July 31, Walmart U.S. saw its ecommerce revenues increase 37%, with strong online grocery sales contributing to the big gain. In addition, its two-year stacked U.S. same-store sales grew by 7.3% in the second quarter – the best growth in more than a decade. Pfizer stock appears to be about 20% undervalued according to our metrics. Prescription drugs and vaccines account for the majority of the drugmaker’s sales. Pfizer’s 1Q 2023 results exceeded our expectations, thanks in part to better-than-expected COVID-19 product sales.

According to Barron’s, ORLY is one of the five most popular auto stocks, with 71% of analysts giving it a Buy rating. That’s even more significant because Barron’s only considered profitable companies. The company has been growing its earnings at a rate of 6.5% per year for the last five years, and analysts expect this rate of growth to be sustained over the next five years. The dividend payout has grown at an average rate of nearly 7% per year over the last five years. The company’s annual EPS has risen nearly 33% over the last five years, and analysts expect almost 9% annual earnings growth over the next five years. Meanwhile, the company plans to use some of its excess free cash in the coming years to lighten that debt load.

Companies also tend to pull back on advertising during recessions, hurting ad-driven sectors such as social media and some streaming services. As previously noted, consumers tend to eliminate extra costs during recessions, which can affect streaming services and other entertainment options. McDonald’s focus on their core customer was rewarded during the last recession when their revenue grew 3.2 percent and operating income increased 17 percent. For the year, their stock had an increased return of 8.5 percent, outperforming the S&P 500 by 47 percent. There’s no reason to believe that McDonald’s won’t enjoy a similar performance whenever the next recession hits. Kenvue expects its sales and earnings to grow in the coming years.

Recession-Proof Stock #20: Flowers Foods

Dollar Tree proved its mettle in the last recession, generating a 2008 return of 60.8 percent which outpaced the S&P 500 by 99.3 percent. If there is an economic downturn, companies like Dollar Tree are well positioned because they are not as exposed to the e-commerce trend and, in fact, can offer some value that even those companies can’t. Kenvue expects 5.5% to 6.5% organic sales growth for the current year. In addition to rising demand for its existing products, Kenvue continues to launch new ones to drive additional organic growth. Amid a backdrop of mounting market uncertainty, many are betting on a potential crash fueled by recession whispers.

• Zimmer experienced robust growth during the first quarter of 2023; we estimate that full-year sales growth will fall near 4.7% after adjusting for foreign exchange headwinds, adds Wang.
• Excluding fuel and currency, they rose 7.3%, 270 basis points higher than in November.
• Bristol-Myers is a big-moated pharmaceutical stock that’s difficult to unseat.
• In the case of McDonald’s (MCD, $266.27), which is so big that it probably doesn’t fear much, we’re likely to see a few new tricks out of a company that has always been well ahead of the curve.
• This doesn’t mean you won’t lose money, but you will likely face less staggering losses.

Blue chip stocks are attractive to investors during recessions because they typically pay dividends, providing them with a tangible return in the form of income. Blue chip stocks in recession-resistant industries tend to https://1investing.in/ be especially stable, which can help lessen the blow of a market sell-off from a recession. These sectors have the best opportunity to hold steady and possibly advance, depending on the severity of the recession at hand.

Recession-Proofing an Overall Portfolio

The U.S. Food and Drug Administration approved the firm’s next-generation insulin pump, which should positively affect results in fiscal 2024, she adds. Today, I cover the 20 best recession-proof stocks to buy now for 2023. I discuss the industries and sectors that historically outperform during recessions, as well as 20 stock picks for you to explore. Intuit’s shares took a hit in early November when the company announced that hiring at Credit Karma would be paused to account for a potential softening of the economy. But, like many growing businesses, it doesn’t mean it has stopped hiring altogether. Instead, it will be much more judicious about the job offers it puts out there until it has greater clarity about the economic landscape in 2023.

What makes high ROICs exciting is that stocks in the top quintile (20%) of this metric compared to their peers are proven to outperform over the long haul. With Hershey’s ROIC ranking as the fifth best of the 38 consumer defensive stocks in the S&P 500 index, history suggests the company is well-positioned to beat the market if it continues firing on all cylinders. ROIC is a critical metric for investors to watch with more mature companies as it measures a company’s profitability compared to its debt and equity — the higher the figure, the better. A high ROIC signals that a company is very good at generating net income from the capital it puts to work on new investments, such as acquisitions or expanded manufacturing capacity.

The stock market is more forward-looking than the economy

For instance, in early September, it announced that it was launching Happy Little Plants under its Cultivated Foods umbrella. The flagship product is a ground plant-based protein alternative with 20 grams of non-GMO soy protein with no preservatives, no cholesterol and just 180 calories. The company’s flavor solutions business continues to grow thanks to Generation Z, who are 85 million strong, and the most ethnically diverse generation in U.S. history. With $500 billion in buying power, Gen Z consumers are looking for authentic flavors – something McCormick is able to provide.

At last check, the group’s order book was well beyond $68.5 billion. BAE has been using its income to improve research and development and beef up its portfolio for the future. This is a smart bet as countries look to continuously update their defense systems. While the group could fall prey to rising costs weighing on margins, the long-term case is intact making it a good choice for investors looking to ride out turbulence ahead. The company also has a unique operating model in which it doesn’t own its manufacturing sites. Rather, it has a stake in smaller, local companies that bottle its products.

Are Any Stocks ‘Recession Proof’?

Like others in its industry, British American Tobacco is diversifying into next-generation products that are most likely to win share of smokers, including vapes, heated tobacco, and oral pouches. We think British American Tobacco stock is worth $47 per share. Estee Lauder stock looks 25% undervalued according to our metrics. The world leader in the global prestige beauty market, Estee Lauder has carved out a wide economic moat thanks to its strong brands, entrenched relationships with retail partners, and cost advantages. Smart—and sizable—investments in omnichannel, marketing, and innovations that have helped the company manage inflation and supply chain disruptions, notes Morningstar senior analyst David Swartz. The acquisition of Monsanto expanded the competitive position in the crop sciences industry—but also increased the firm’s exposure to litigation around potential side effects from glyphosate use.

In addition, recession-proof companies tend to be financially healthy and highly profitable—two qualities that are prized when economic times get tough. Such companies often have competitive advantages that allow them to maintain reliable cash flows over time, regardless of what’s going on in the economy. As a result, shares of these companies can be good stocks to own during a recession.

For more stocks, head on over to 5 Best Recession-Proof Stocks to Buy in October. When stocks went down again in 2018, blue-chip artwork posted an average gain of 10.6%. Other real estate crowdfunding platforms own loans secured against real property.

Understanding Recession Proof

Going forward, analysts expect this rate to drop to growth of only 5% per year. AEE currently offers a strong dividend yield, and the company has steadily grown its dividend payout by an average of more than 5% per year for the last decade. XEL’s dividend payout has steadily increased for more than a decade, with the average increase of around 6% over the last five years. CMS’s largest price decline over the last decade was 30%, and the company has outperformed the S&P 500 slightly over the same time frame. Better returns for lower drawdowns are the hallmark of a good recession stock.

This in turn motivated central banks to reduce interest rates to stimulate economic activity and give out cash assistance to help families navigate the tough economic environment. Some investors simply can’t stomach watching their investment portfolios dive by 25%. Even when they have decades to go before their retirement, the thought of their portfolios losing money keeps them up at night. Keep in mind that in a recession, the Federal Reserve tends to lower interest rates. As interest rates drop, so do bond yields, which means bond prices go up. That serves you just fine as a holder of higher-yield bonds bought pre-recession.

You’re not going to get rich quick by owning Hormel, but patient investors will be rewarded. It has generated 13.8% average annual returns over the past five years, and 21.8% over the past 10. During 2008, Hormel’s stock lost almost 22% of its value, which is still considerably better than the market. Following the recession, Hormel has put up positive returns in nine of the past 10 years.

Companies with durable demand for their products or services tend to do best during a recession. Often called defensive stocks, these companies sell products or offer services people need, regardless of economic conditions. Many healthcare, consumer staples, utility, and cost-conscious retail companies do well in a recession. Any diversified portfolio should include a mix of financially strong blue chip stocks with the financial fortitude to withstand a recession.

It anticipates increasing organic revenue in line with the projected 3% to 4% growth rate of the consumer health market through 2025. Meanwhile, adjusted earnings should rise faster, driven by cost controls and falling interest expenses as it de-levers. Still only generating 9% of its revenue from its international operations, the company’s global growth runway may prove that its valuation is too low today. Best yet, management hopes to get its payout ratio back above 50% to reward shareholders. Announcing a 15% dividend increase during its second-quarter earnings, Hershey offers intriguing passive income potential at today’s prices.

How would you feel if your account gained 1% for the quarter, even as the overall market was down 4%? While a 1% gain may not seem like much, it shows your investments are still positively performing even during a recession. Protecting your investments against downturns, while still maximizing gains, requires a thoughtfully constructed portfolio that’s ready for anything, even a recession. A well-diversified portfolio is one of the best ways to ensure you’re prepared for whatever turns the market takes, financial advisors say. That means including some of the sectors mentioned above, but it also means making sure your portfolio is broadly diversified across industries.