Will the US economy fall into a recession in 2022? According to the inverted yield curve, that may be the case and investors could seek out safety in a portfolio of recession-proof stocks. An inverted yield curve means that a short-term U.S. treasury is paying a higher interest rate than long-term U.S. treasuries.
Which Stock Market Sectors Perform Best During a Recession?
- Consumer Necessities: In any market, non-cyclical stocks balance your portfolio, and they are an especially excellent defense against economic hardships. Most important in this category are food, personal care, and household goods – the bare necessities for human existence. Regardless of the economic conditions, consumers must purchase these goods and services. Johnson & Johnson (JNJ) and Proctor and Gamble (PG) are two consumer companies that consistently raise its dividends, posting gains every year for the last decade – but you may want the price to pull back slightly amidst additional market declines to capture a good entry price.
- The Vices: Sadly, the more turbulent the economic times, the more people indulge in their vices – especially when it comes to gambling, tobacco, and alcohol. Two attractive stocks, whose falling prices last week make low entry points, are Altria Group (MO) and Anheuser-Busch (BUD). For example Altria, one of the world’s largest tobacco makers, has averaged 14.5% annual return over the last 10 years – meaning it has sustained consistent growth despite the busts and booms of the market. Buying sin stocks for your portfolio can give you a hedge against recessionary conditions.
- Health Care Sectors: Regardless of how poor the economy performs, people will still fall ill. Considering that the health sectors have underperformed in the last several years, investors can capitalize upon the low stock price – especially as a hedge against the flailing consumer and financial sectors. The health sectors stocks represented in the S&P 500 essentially match the overall index’s P/E ratio, giving them stability throughout economic times.
- Insurance Stocks: Like the basic necessities of life, people will always need insurance. Life and property insurance remain in demand, even in the worst economic conditions. Not only do insurance stocks weather slowing business, but they also provide large, consistent payouts matched with pricing stability.
- Energy Developments: With oil prices expected to remain above $85, energy stocks surrounding crude oil will continue to perform well into 2008. Another emerging area within the energy sector is renewable energy. With higher energy prices, these stocks are coming into the limelight. However, as it currently stands, developments have not yet been made that allow renewable energy to be cost-effective. As Google’s new venture, RE < C moves forward in its development, keep an eye on growth in this recession-proof sector.
- Go Global: With international economic globalization, countries are no longer dependent upon the performance of the United States; the rise of the Euro is case in point. Taking your dollars abroad for investment provide a great hedge against domestic troubles. However, keep in mind that countries whose economies are disproportionately dependent upon exports will feel the pressure, while economically diversified countries – such as Japan and Europe – can maintain their independent growth.
Top Recession Proof Stocks
Here are 10 recession proof stocks & investments to strengthen your portfolio during tough times.
1. Walmart (WMT) – Dividend Yield: 1.75%
When times are tough, consumers will be price conscious and spend more money at large discount stores like Walmart. During the 2008 great recession, Walmart grew its revenue by 7% and remained steady.
Walmart is a member of the S&P 500 Dividend Aristrocrats index and has raised their dividend for 46 consecutive years.
WMT stock pays a 1.75% dividend yield, providing decent income along with consistent 10% CAGR over the last 10 years.
It’s one of the safest large cap stocks you can buy and should do fine during a US recession. WMT stock is currently up 3% YTD while many other stocks are still down 20%+.
2. Apple (AAPL) – Dividend Yield: 1.12%
Known as the leading tech company in the world, Apple is one of the best recession stocks to own contrary to popular belief. During 2008, the company increased revenue 65% YOY compared to 2007 and continued to chug along while other tech companies suffered falling sales.
Apple is also a big innovator too. The company has a wonderful upcoming product line in the 2nd half of 2020 and posted flat revenue in the beginning of 2020. Services and streaming revenue grow while iPhone sales remained flat. However, the iPhone SE is Apple’s first discount smartphone and should help bolster the company’s service revenue.
Apple pays a 1.12% dividend yield and has grown the dividend over the last 7 years. While most companies halted share buybacks and dividend increases, Apple announced another $50 billion share buyback program and increased the dividend.
3. Coca Cola (KO) – Dividend Yield: 3.6%
No matter what’s happening to the economy, people will consume beverages like water, juice, and soda. Coca Cola is one of the most stable companies in a recessionary period even though they are temporarily affected by the COVID-19 global lockdown.
Consumers began stockpiling drinks during the global pandemic which added a quick boost to Q1 sales. Coca posted a strong Q1 2020 but withdrew 2020 guidance because social distancing negatively affects its overall sales. Once the governments open up everything, I expect Coca Coca sales to surge as more people consume drinks at movie theaters, restaurants, and sporting events.
Coca Coca is a member of the S&P 500 Dividend Aristrocrats index and has increased it for 56 straight years. Currently at a 3.6% yield, KO stock is a safe, recession proof stock that will pay dividends as America moves past the “Great Lockdown”.
4. Costco (COST) – Dividend Yield: 1%
Costco is similar to Walmart as consumers will drift towards bigger discount chains to search for bargains when purchasing food & clothing. During the 2008 Great Recession, revenue increased 8% in 2008 and basically remained flat in 2009. Of course, Costco has grown since then and expanded to international markets like China.
No matter what’s going on in the economy, people will buy essential items at their local Costco and cut back on unneccesary discretionary purchases like luxury items (watches, shoes, etc).
5. Dollar General (DG) – Dividend Yield: 0.83%
Dollar General is known as the “Walmart of Middle America” and holds the title as America’s fastest growing retailer.
The company focuses on smaller towns that bigger chains like Walmart and Costco ignore. It’s also one of the few stocks that gained in price during the COVID-19 crisis. DG stock is up 12% YTD and should have another strong year to maintain their 15+ year record of increased revenue.
The company pays a dividend and has increased it for 4 straight years.
6. Ross Stores (ROST) – Dividend Yield: 1.25%
Let’s continue the trend of discount retailers with Ross Stores, one of America’s leading off-brand discount retailers. The bad news is Ross Stores will be devastated by the COVID-19 closures since almost all of their sales occur in their stores. However, people will flock to cheaper off-brand retailers to save money and stretch their dollar further.
Ross Stores increased their revenue during the 2008 Great Recession and should bounce back once stores open back up. The company pays a 1.25% dividend yield and has increased their dividend for 13 straight years.
7. AT&T (T) – Dividend Yield: 6.87%
AT&T is probably the most boring stock to own because most people hold it for the dividend. The company gew revenue in 2008 during the Great Recession and still pays a solid 6.83% dividend yield.
Consumers will keep their cell phones & internet during a recession since communication is one of the last things people will cut. AT&T is still a bargain even though the acqusition of DirectTV was a big mistake.
T stock is a slow and steady performer with an awesome dividend. AT&T is a member of the S&P 500 Dividend Aristrocrats index and has increased their dividend for 35 straight years.
8. Netflix (NFLX) – Dividend Yield: N/A
While many businesses lost revenue & customers, Netflix was the clear winner of the COVID-19 global “stay-at-home” orders. The company gained over 15 million subscribers in Q1 2020 as more consumers stayed home and binged watch on TV shows & movies.
Netflix posted increased revenue for 15 straight years and I don’t see a US recession slowly down their growth. With millions of Americans out of work, many will watch Netflix to pass the time.
Netflix stock doesn’t pay a dividend but it’s one of the best stocks to own with a crazy high 44% CAGR over the last 15 years.
9. Match Group (MTCH) – Dividend Yield: N/A
Will people stop looking for love during a recession? Match Group owns Tinder, the world’s most popular dating app, as well as other big dating apps like Plenty of Fish, Match.com, etc.
After successfully completing a spinoff from IAC, Match Group is the best way to invest in the accelerated online dating trend.
Tinder alone brought in over $2 billion in revenue and people won’t stop looking to hook up even in a struggling economy.
While Match Group doesn’t pay a dividend, you are getting a stable company with 58% CAGR over the last 3 years.
10. Shopify (SHOP) – Dividend Yield: N/A
The Canadian online e-commerce company is one of the fastest growing stocks on the NYSE and should survive the upcoming recession with ease. The company relies on a software subscription business model and even more people may open their own online store as unemployment rises.
Shopify just passed a key milestone of 1 million paying customers and looks like it’s headed to $1,000 in the near future.
THe company doesn’t pay a dividend but a 99% CAGR over the last 3 years will keep investors very happy.
Disclosure: I own shares of Walmart, Apple, Coca Cola, Netflix, Match Group and AT&T