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No industry or stock is completely recession-proof, but some are less vulnerable to economic contractions than others. Adding or increasing exposure to these industries and stocks may help ballast your portfolio during recessionary periods.
Historically Recession-Resistant Industries
Historically recession-resistant industries tend to perform similarly in the good times and the bad times in the economy. These sectors typically provide goods and services that remain in demand even when discretionary spending falls. These industries include:
The Consumer Staples sector provides a set of essential consumer products, like food, clothing, or personal products. People still need soap, laundry detergent, and toilet paper regardless of the economic conditions.
Some of the top consumer staples companies that manufacture or sell these goods include Procter & Gamble (PG) and Colgate-Palmolive Company (CL).
Companies that provide consumer staples may also benefit from consumers shifting their spending habits out of fear from economic uncertainty or periods of historically high inflation.
For example, people preparing meals at home versus going out to restaurants.
Grocers and discount retailers like Walmart Stores, Inc. (WMT), Costco Wholesale Corporation (COST), and the Kroger Company (KR) are some of the largest grocery chains in the United States by revenue, and may stand to benefit from this shift in behavior.
These discount retailers sell products made by Tyson Foods (TSN), General Mills (GIS), and PepsiCo (PEP), all of which are well-known stocks in the consumer staples sector.
Historically, healthcare stocks have been recession-resistant too. They tend to trade at lower valuations in the first place, so changes in economic policy or in the job market affect them less than those changes would to high-flying tech stocks.
Also, generally speaking, the products and services provided by healthcare companies remain in demand throughout a recession, like drugs, over-the-counter remedies, medical equipment, and health insurance.
Some of the top healthcare stocks include CVS Health Corp. (CVS), UnitedHealth Group (UNH), Bristol-Myers Squibb Co. (BMY), Johnson & Johnson (JNJ), and Thermo Fisher Scientific (TMO).
The utilities industry refers to a category of companies engaged in the provision of basic amenities, such as water, electricity, natural gas, and sewage services.
These vital services remain in demand during economic downturns.
The largest utilities stocks by market capitalization include NextEra Energy Inc. (NEE), Duke Energy Corporation (DUK), Southern Company (SO), and Dominion Energy (D).
Other prominent utilities stocks include Waste Management (WM), American Water Works (AWK), and Exelon Corporation (EXC).
Other Stocks to Consider in a Recession
There are plenty of other stocks that have similar characteristics to the ones mentioned above.
For example, tobacco stocks like Philip Morris International (PM) and Altria Group (MO) are within a niche of the broader consumer staples sector.
More generally, traditional value stocks like Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP) are favorable options in the energy sector.
Last, you could buy an exchange-traded fund in one of the above industries. For example, you might consider a consumer staples ETF like the Vanguard Consumer Staples ETF, a healthcare ETF like the Health Care Select Sector SPDR Fund (XLV), or a utilities ETF like the Global X US Infrastructure Development ETF (PAVE).
Recession Proof Stocks: Frequently Asked Questions
Are there any stocks that are recession proof?
No stock is 100% recession proof, but some stocks in specific industries have characteristics that make them better suited to survive and/or thrive during a recession. Stocks in the Consumer Staples, Healthcare, and Utilities sectors of the economy have historically performed well during economic downturns.
Where should I invest in a recession?
If you are seeking to preserve and grow your wealth over a long time horizon, it is prudent to create a well-diversified portfolio that can withstand various economic conditions. This means buying diversified exchange-traded funds, and/or stocks from various industries.
What goes up during a recession?
Stocks that tend to trade at reasonable valuations do well in a recession, or at the very least, tend to not go down as far as growth stocks. Generally speaking, active investors may shift from growth stocks to value stocks during periods of uncertainty and when multiples compress.
What stocks survive a recession?
Well-capitalized companies with strong business models survive recessions. Examples include blue-chip stocks like Apple (AAPL), Alphabet (GOOG), Berkshire Hathaway (BRK.B), JPMorgan Chase & Co. (JPM), Lockheed Martin (LMT), and Procter & Gamble (PG), among many others.
Wrapping Up: Recession Proof Stocks
While no two recessions are the same, we can still learn from the past to make better informed decisions about the future.
In sum, stocks with fair multiples that have solid business models in industries that are relatively agnostic to economic cycles tend to perform well in recessionary periods relative to stocks with high multiples that have shaky business models in industries that thrive when times are good.
>> Learn More: How to diversify your portfolio for any type of market
This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we selected recession proof stocks.