Stocks That Do Well in a Recession: Top 6 Companies to Buy
New predictions from Goldman Sachs (NYSE: GS) show a 30% chance of a recession in the next year. As a result, investors are scrambling to find stocks that do well in a recession to protect their returns.
Inflation unexpectedly rose 8.6% from last year, its highest since 1981. Meanwhile, the Fed is aggressively hiking interest rates to combat it. The most recent was another 0.75% increase.
Raising interest rates can slow economic growth. Although this can be good for taming inflation, there are concerns it can spark a recession. With this in mind, companies are already seeing slower growth with higher inventory levels.
For example, on Target’s (NYSE: TGT) Q1 earnings call the CEO, Brian Cornell, mentioned changing consumer attitudes. As a result, softer sales are leading to inventory levels well over pre-pandemic levels.
At the same time, some industries outperform others during recessions. For instance, discount stores, fast food and healthcare saw higher demand in the past few recessions. All of these are consumer staples or essentials that people still need, even in a recession.
During a recession, consumers are more cost-aware. They look to save money. So, cheaper options or necessities are solid investment ideas.
Below are six stocks that do well in a recession with strong cash positions, brand power, and market positions.
What Are the Best Stocks That Do Well in a Recession?
A recession means the economy is shrinking. Not to be confused with a depression, a recession means a few quarters of slower economic growth.
So far, U.S. GDP shrank 1.5% in the first quarter. Yet the Atlanta Fed estimates 0% growth in Q2. Will we see more damage in the second quarter with inflation and labor cutting into costs?
Investors are piling into defensive stocks like food and healthcare. Check out the stocks that do well in a recession below to get your portfolio back in the green this year.
No. 6 Mckesson (NYSE: MCK)
- Industry: Healthcare
- Revenue Growth: 11%
Mckesson is the largest U.S. pharmaceutical distributor. As such, the company plays a critical role in the healthcare industry.
With expanding access to health care and a growing population, Mckesson is well-positioned to continue growing. Total U.S. prescription sales expect to reach 1.4T by 2026. Not only that, but MCK is streamlining the business, focusing on high-margin opportunities.
If a recession does happen, people still need their medicine. And Mckesson is one of three drug wholesalers handling over 90% of medication.
No. 5 TJX Companies (NYSE: TJX)
- Industry: Discount Retailer
- Revenue Growth: 32%
TJX Companies is well known for its fleet of discount stores, including TJ-Maxx, Marshalls and HomeGoods, which tend to perform well during recessions.
The discount retailer is off to a strong start this year. Though sales missed slightly, EPS and profit margins improved. The performance shows the leading off-price retailer’s position as a consumer favorite.
TJX’s business model helps them catch trends for 20% to 60% off regular prices. Furthermore, the company will likely benefit from retailers offloading high inventory levels. If there is a recession, shoppers will continue looking for deals, and TJX is the best in the business.
No. 4 Coca Cola (NYSE: KO)
- Industry: Soft Drinks
- Revenue Growth: 18%
Coca-Cola is another brand favorite with a dominant market position. In fact, Coke owns and markets five of the top six nonalcoholic drinks globally.
The drink maker has an advantage, though. Coke can raise prices to offset the higher costs and still sell. On top of this, the company focuses on high-potential areas such as coffee and low sugar.
Coke grew revenue by 18% in the first quarter with a better product and price mix. Moreover, KO stock is holding up well this year as investors rush for safety.
No. 3 Mcdonald’s (NYSE: MCD)
- Industry: Fast Food
- Revenue Growth: 21%
As the largest fast-food company in the world, Mcdonald’s is a go-to favorite for fast, cheap food. When consumers look to save money, expensive food is usually one of the first to go. For this reason, Mcdonald’s stock outperformed in 2008. Can Mickey D’s do it again?
The company’s growth strategy seems to be paying off so far. Global comp sales rose almost 12% in the first quarter while digital sales surpassed $5B.
Lastly, Mcdonald’s continues expanding its market share by focusing on a modern, digital transformation. However, below are the top two stocks to buy that do well in a recession.
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Will Buying Stocks That Do Well in a Recession Boost Returns
Recessions can cause high unemployment and painful losses. We have seen it before. But, buying stocks that do well in a recession can help buffer your portfolio from risk.
Don’t get me wrong, investing in a recession is challenging. Most assets lose significant value. Yet, a handful of companies see higher demand. With this in mind, these are the companies you will want to focus on.
For example, Walmart and Dollar Tree increased shareholder value during the last recession. With superior low-priced business models, they were able to attract cost-aware shoppers.
The most important things to consider are market position, brand power and the nature of the business. Companies with necessary items such as food, health care or utilities tend to perform well.
