A recession is a period of temporary economic decline defined by a reduction in trade and industrial activity. Economists generally “call" a recession after gross domestic product (GDP) falls for two consecutive quarters.
During a recession, many companies report a decline in earnings. This pushes down the price of stocks, particularly growth stocks. However, when growth-oriented stocks decline, value-oriented stocks rise. And as investors shift from growth to value, the stocks of these companies tend to rise to the top.
What qualities make up a recession-proof stock? These are companies that make products and/or services that are always in demand. Consumer staples, healthcare, and utilities stocks are examples of recession-proof stocks.
Many recession-proof stocks also have a low beta value. During a bull market these stocks are not likely to outperform the broader market. But that means during a recession, these stocks will not drop as far. And because many of these stocks pay a dividend, many investors can get a positive total return in their portfolio by reinvesting those dividends.
Here are seven recession-proof stocks that you should consider adding to your portfolio. Not only are they solid defensive choices, but they can also offer a little growth in the best of times.
Quick Links
- Walmart
- Costco
- General Mills
- PepsiCo
- Merck & Co.
- Lockheed Martin
- Becton, Dickinson and Company
#1 - Walmart (NYSE:WMT)
Leading off this list of recession-proof stocks is Walmart Inc. (NYSE: WMT). Walmart offers both consumer staples (i.e. the must-have products) and consumer discretionary products. The company’s business model focuses on everyday low prices. This makes it an appealing option for consumers looking to trade down and find a store where they can stretch their dollars further.
And historically, Walmart tends to outperform other retailers during tough economic times. Earnings growth is perhaps the single best predictor of stock price growth. So if you suspect a recession is near, you would do well by owning shares of WMT stock.
In the five years ending in May 2023, Walmart stock is up 81.99%. And the total return for investors is even larger when you add in any reinvested dividends. That being said, Walmart doesn’t pay the highest yielding dividend at just 1.49%. But the company has increased its dividend for 51 consecutive years which makes it a dividend king. And with a low beta of just 0.48 (anything below 1 is considered a low beta stock), Walmart is a clear recession-proof stock.
About Walmart
Walmart Inc engages in the operation of retail, wholesale, other units, and eCommerce worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under Walmart and Walmart Neighborhood Market brands; membership-only warehouse clubs; ecommerce websites, such as walmart.com.mx, walmart.ca, flipkart.com, PhonePe and other sites; and mobile commerce applications.
Read More - Current Price
- $92.24
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 29 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $93.69 (1.6% Upside)
#2 - Costco (NASDAQ:COST)
Another retailer that makes a great recession-proof stock is Costco Wholesale Corporation (NASDAQ: COST). Like Walmart, Costco carries both the items that consumers want and those that they need. The immediate difference between the two companies is that Costco is a warehouse club. That means there’s a membership fee. And as long as consumers are willing to pay that fee, they have an incentive to shop at Costco.
During the Covid-19 pandemic, Costco didn’t miss a beat on earnings or revenue. In fact, in many quarters, the company beat those numbers on a year-over-year basis – and continue to do so.
As of May 2023, Costco is not a cheap stock whether you look at price-to-earnings or share price. And with a dividend yield of just 0.81%, there are better options out there. But COST stock is up 151% in the last five years, easily outpacing the broader market. And the company has increased its dividend for 19 consecutive years which continues to boost an investor’s total return.
About Costco Wholesale
Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories.
Read More - Current Price
- $954.07
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $1,011.74 (6.0% Upside)
#3 - General Mills (NYSE:GIS)
The first two stocks on this list were those of companies who sell goods to consumers. With General Mills (NYSE: GIS) you’re buying shares of a company that makes those consumer staples. The company has over 100 brands including Cheerios, Pillsbury and Blue Buffalo, which it acquired in 2018. It also does business in 100 countries. That gives the company a broad footprint and a large addressable market.
Companies like General Mills tend to perform better during recessions as consumers eat at home more. And a company like General Mills has pricing power while still being able to incentivize consumers to choose their brands over a house brand.
General Mills is a blue-chip company that delivered 115% in the last five years. And in a volatile 2022, GIS stock was up 23%. It shouldn’t be lost on investors that General Mills has not missed a dividend payment for over 120 years.
About General Mills
General Mills, Inc manufactures and markets branded consumer foods worldwide. The company operates through four segments: North America Retail; International; Pet; and North America Foodservice. It offers grain, ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, bakery flour, frozen pizza and pizza snacks, snack bars, fruit and savory snacks, ice cream and frozen desserts, unbaked and fully baked frozen dough products, frozen hot snacks, ethnic meals, side dish mixes, frozen breakfast and entrees, nutrition bars, and frozen and shelf-stable vegetables.
Read More - Current Price
- $63.61
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $71.56 (12.5% Upside)
#4 - PepsiCo (NASDAQ:PEP)
Next on this list is another company that straddles the line between consumer staples and consumer discretionary products. PepsiCo, Inc. (NASDAQ: PEP). Pepsi is most immediately known for its namesake carbonated beverages. But the company stands out as a recession-proof stock because of its snack food business. The company acquired Frito-Lay many years ago, and that is contributing to the company’s top and bottom lines.
A company like PepsiCo has pricing power which is a key attribute for investors to consider when they are looking for recession-proof stocks. The company is generally able to pass along some of its increased producer prices to its consumers.
PEP stock is up 99% in the last five years. And the company is another dividend king. Pepsi has increased its dividend in each of the last 52 consecutive years. As of May 2023, PEP stock carries a dividend yield of 2.60% which beats the S&P 500 average of 1.65%. And PEP stock carries a low beta of just 0.53.
About PepsiCo
PepsiCo, Inc engages in the manufacture, marketing, distribution, and sale of various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
Read More - Current Price
- $152.79
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $184.31 (20.6% Upside)
#5 - Merck & Co. (NYSE:MRK)
The pharmaceutical sector is a good place to look for recession-proof stocks. There are many solid choices, but Merck & Co. Inc. (NYSE: MRK) is one that rises to the top. For starters, the company has Keytruda which is the world’s best-selling drug, in terms of revenue. In Merck’s first quarter 2023 earnings report, Merck reported $5.3 billion in sales of Keytruda. And the company is expected to generate $23 billion from just Keytruda.
And whenever you look at a pharmaceutical company, you have to look at the company’s existing products and its pipeline. The Merck portfolio is broad on both scores. The company has over 100 drug candidates in Phase 2 or Phase 3 clinical trials. That means that the company will likely be bringing more drugs to market in coming years.
Of the stocks we’ve looked at so far, Merck can be considered properly valued with a price-to-earnings ratio around 22x. The company also has a dividend yield of 2.52% and has been increasing the dividend for 12 consecutive years.
About Merck & Co., Inc.
Merck & Co, Inc operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health. The Pharmaceutical segment offers human health pharmaceutical products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, and diabetes under the Keytruda, Bridion, Adempas, Lagevrio, Belsomra, Simponi, and Januvia brands, as well as vaccine products consisting of preventive pediatric, adolescent, and adult vaccines under the Gardasil/Gardasil 9, ProQuad, M-M-R II, Varivax, RotaTeq, Live Oral, Vaxneuvance, Pneumovax 23, and Vaqta names.
Read More - Current Price
- $98.05
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $127.13 (29.7% Upside)
#6 - Lockheed Martin (NYSE:LMT)
Another area to look for recession-proof stocks is in the defense sector. The United States is the country that spends the most on its national defense. In 2023, defense spending will likely top $880 billion. And while our elected officials frequently bemoan the level of defense spending, that number rarely goes down in a meaningful way. That’s what makes Lockheed Martin Corporation (NYSE: LMT) an attractive option.
Lockheed touches every area of the defense industry from land, sea, and air to space and cybersecurity. In the company’s April 2023 earnings report which covered the first quarter of 2023, revenue and earnings both beat expectations. And the company believes defense spending will increase by 3% this year. That should lay the foundation for future growth.
As of May 2023, LMT stock has a P/E ratio of around 20.6x earnings and a low beta of 0.67. It also has a dividend yield of 2.66% and has increased its dividend for the last 20 consecutive years.
About Lockheed Martin
Lockheed Martin Corporation, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. The company operates through Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space segments.
Read More - Current Price
- $489.02
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $612.29 (25.2% Upside)
#7 - Becton, Dickinson and Company (NYSE:BDX)
The last recession-proof stock on this list is Becton, Dickinson and Company (NYSE: BDX). The company develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products.
BDX stock is up “only” about 11% in the last five years. This is consistent with the choppiness that investors found in the medical device sector. Pandemic regulations slowed the pace of elective surgeries and other medical procedures.
But viewed through a wider lens, Becton, Dickinson and Company has been an exceptional stock for investors to own and is likely to continue to pick up that growth in the future. Over the last five years, the company’s annual earnings per share (EPS) is up 33%. And analysts expect that EPS growth to continue at a pace of around 9% in 2023.
At 46x earnings, BDX stock doesn’t come cheap. And investors can find a better yield than the 1.45% yield. However, this is a dividend king that has increased its dividend for 51 consecutive years.
About Becton, Dickinson and Company
Becton, Dickinson and Company develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products for healthcare institutions, physicians, life science researchers, clinical laboratories, pharmaceutical industry, and the general public worldwide. The company operates in three segments: BD Medical, BD Life Sciences, and BD Interventional.
Read More - Current Price
- $227.68
- Consensus Rating
- Buy
- Ratings Breakdown
- 6 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $283.50 (24.5% Upside)
Despite the dire overtones, recessions are fairly common occurrences. In fact, there have been 13 recessions since World War II. That number goes up to 23 if you go back to 1900, which was before the creation of the Federal Reserve in 1919.
But that should serve to remind investors that the economy – and the stock market – are resilient. When you know where to look, recessions don't have to be scary. And knowing the companies that are likely to perform well during a recession is a good place to start.
However, you do have to take action. Market timing is difficult for even the most seasoned investor. So buying stocks when they are objectively undervalued is a good strategy to manage through a recession. If you're unsure of where to start looking for your own recession-proof stocks, MarketBeat offers many free stock screeners that allow you to search for stocks based on the criteria that matter most to you.
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