Best Stocks to Buy In A Recession: The word on the street is that a recession is coming. In a recent survey, over 50% of CFOs Deloitte consulted say that they expect the economy to take a turn by the end of 2020. If they are right, this would make the first big downturn since 2008.
It’s been a few years since the Great Recession, so let’s recap briefly. Very briefly.
Bonds went up when investors got scared. Banks needed handouts and stocks plummeted. However, some industries were hit harder than others.
Consumer Staples turned out to be surprisingly resilient. They took a collective 28.5% hit during the Great Recession. That figure is terrifying, but even more nightmare-inducing is the hit the S&P 500 took – over 56%.
The most successful of the Consumer Staples stocks tended to be companies that sell lower-priced products.
The reasoning is simple. People who buy higher priced products typically will normally switch to lower priced products when money gets tight. People who already buy lower priced products will keep buying those products – they need their staples.
If 2008 is anything to go by, these stocks could be the best to invest in:
Ross Stores (ROST)
The company has two brands – Ross Dress for Less and dd’s DISCOUNTS. Ross is the bigger of the two and the largest discount apparel store chain in the United States. It has 1,480 locations in 38 states and DC.
The other side of Ross – dd’s DISCOUNTS – is much smaller, with 237 locations spread across 18 states.
The Ross value proposition is simple. It sells name-brand goods that are 20-60% below their department store counterparts (dd’s is 20-70% below retail prices).
It buys these items from a network of 8,000 vendors and manufacturers, so inventory changes all the time.
Ross is able to be so flexible with its pricing because it doesn’t function the way most retailers do. It doesn’t return items to manufacturers, require promotional allowances, or multiple shipments.
It buys up inventory as final sale and resells it, passing the discount onto consumers.
Walmart is more than a giant big-box chain – a lot more. The company has rose past those humble beginnings to create an entire ecosystem of offerings, some of which you may not have realized that Walmart owns.
Let’s look at some of the company’s assets.
Walmart owns its namesake chains as well as Sam’s Club and the pharmacies of the same names. Most people know that, but did you also know that the company owns Advance Auto Parts, Bonobos, Jet, Lord & Taylor, Modcloth, Moosejaw, Shoes.com, and Vudu?
Walmart also has partnerships with Rakuten, Door Dash, Postmates, and FedEx.
Over the past few years, Walmart has been increasing revenue by emphasizing eCommerce and fast-paced delivery. On the online shopping front, Walmart sells goods under 58 different banners and reaches 27 countries.
It is also emphasizing delivery options. Point in case, Walmart is offering same-hour delivery in some parts of China. It does this by investing in delivery platforms.
Walmart has also been emphasizing an omnichannel experience for its customers with a mix of pickup options and delivery choices.
McDonald’s is one of the most recognizable brands in the world. It is also largely a franchisor. It has locations in over 100 countries. Some 93% of those fast food restaurants are owned by franchisees.
Currently, the company has a goal to be 95% owned by franchises. McDonald’s balances the proportion of company-owned locations with franchises to meet its goals, and this business model is very intentional.
The company likes to use the restaurants it owns to field test different ways that McDonald’s can improve, better training methods, pricing strategies, and marketing concepts.
Most McDonald’s franchises fall under a conventional franchise arrangement. This means that the company owns the land as well as the building. It allows franchisees to lease those assets while requiring them to pay for their own equipment and décor.
The co-investment model allows McDonald’s to collect rent as well as licensing fees. The company also gets the initial franchisee fee.
The McDonald’s menu is continuously evolving, and in some cases, it is location-dependent. This freedom allows the company to leverage local tastes, preferences, and eating times while adjusting prices to meet demand.
Dollar Tree (DLTR)
Dollar Tree has grown far beyond a store that sells everything for only $1. It has 15,237 locations throughout the US and Canada. Many of these are Dollar Tree stores, but not all of them – not even the majority of them.
In 2015, the company purchased Family Dollar, a discount retailer with over 8,200 locations. Originally, these stores focused on home goods, seasonal décor, and toys, but that business model has been changing.
The vast majority of Dollar Tree stores – almost 5,700 stores out of just over 7,000 locations – have frozen and refrigerated goods.
The overarching Dollar Tree strategy is to provide fun and fresh goods in its stores that represent basic needs as well as some impulse buys while providing a shopping option to shoppers in many locations.
Complementary merchandise and a broad geographic footprint are helping the company win market share – and it is growing. Dollar Tree believes that there is room for at least 10,000 Dollar Tree stores and over 15,000 Family Dollar stores in the United States.
Hasbro has a large brand portfolio. It owns Monopoly, Transformers, Nerf, Play-Doh, My Little Pony, and Power Rangers as well as Dungeons & Dragons and Magic: The Gathering.
In 2018, it was the number one toy company in the United States and Canada. However, Hasbro is more than a toy company – a lot more. It is also a digital company.
Hasbro has been focusing on building its YouTube presence. It boasts more than 10 million subscribers and 5 billion views – and that’s just the start of it.
The company is trying to mimic the 24-hour news cycle in its social engagements. The content its users generate topped 50 billion views in 2018.
It has also been experimenting with shoppable posts on social media platforms and deepening its interactions with consumers.
To help this effort along, Hasbro launched a fan destination called Hasbro Pulse, an immersive entertainment experience.
The company also has digital gaming, partnerships with movie production houses like Paramount, and toy support with Disney.
Amgen is a biotech company that focuses on bone health, cardiovascular conditions, hematology, inflammation, nephrology, neuroscience, and oncology. If that sounds like a broad reach, it is.
The human therapeutics company has been around since 1980 and it has more than a dozen drugs in its pipeline. The bulk of Amgen’s sales come from the rheumatoid arthritis drug ENBREL and NEULASTA, which is used to reduce the risk of infection in people with low white blood cell counts because of chemotherapy treating non-myeloid cancers.
Amgen’s experience means that knows how to scale and how to market its products. While the company does distribute its products through pharmaceutical wholesalers, it makes efforts to reach consumers directly through print ads, online media, and other forms of multi-channel marketing.
The company does face intense competition from generics, especially as its different drugs reach patent expiration.
The key here is that Amgen does have so many drugs in its pipeline that it is well-diversified and it has the background to ensure that it can make a success of a drug that gets FDA approval.
Gilead Sciences’ product portfolio contains over two dozen medications and it has a presence in more than three dozen countries. It is a rising star in the HIV treatment market and the sale of those treatments have significantly increased sales.
The company is working on a capsid inhibitor that interrupts the life cycle of the HIV virus. Gilead also has a booming Hepatitis C business as well as a drug called Filgotinib, which is under the review as a treatment for arthritis and Crohn’s Disease.
Gilead has some important collaborations in place too. For instance, it has been working with Galapagos to boost its pipeline. Gilead has also made some strategic acquisitions, such as its purchase of Kite Pharma, which focused on treating cancer through reprogramming patient immune cells, and Cell Design Labs, which had technology program patient cells to attack cancerous tumors.
Bristol Myers Squibb (BMY) / Celgene
Celgene is no longer trading. It was recently acquired by Bristol-Myers Squibb (BMY). Investors were given one share of BMY as well as $50 cash and a Contingent Value Right or CVR.
The latter is a tradeable investment on the NYSE (ticker: BMYRT) and can entitle the owner to receive $9 if specific drugs achieve FDA approval by certain dates.
The last CVR expires on March 2021.
When money gets tight, many people still buy their beer, and Budweiser is one of the most popular on the market. This may have been one of the reasons that InBev opted to purchase Anheuser-Busch for $52 billion in 2008. The ticker symbol is still BUD on the NYSE.
AB InBev counts 8 of 10 most popular beers in the world as part of its brand portfolio and more than 500 brands.
The company has been slowly taking over more US market share. According to its annual report, AB InBev had its best market share in the US since 2012.
The company credits eCommerce and a robust brand experience platform with the growth.
AutoZone is one of the leading auto parts store in the US. It has 5,772 domestics locations and several more in Mexico and Brazil.
The company has a large product line which includes automotive parts as well as maintenance items and it serves both consumers and repair garages. Some of this business is online. AutoZone also owns diagnostic software called ALLDATA and its own parts brand called Duralast.
To be competitive, AutoZone has been working on some novel initiatives, like its Loan-A-Tool program which lets consumers borrow the tools they need to get the job done.
It does some “buy online and pick up in-store” and next-day delivery as well. Add to this some free services like checking why an engine light is on, battery charging, and testing alternators and AutoZone is more than an auto parts store.
When the economy is tight, more people attempt to service their own vehicles, so AutoZone has a strong value proposition, even in a down economy.
Recession-Proof Stock Picks
While there is no such thing as a recession-proof stock pick, some companies have a better track record of weathering a bad economy than others.
Past performance may not predict future returns but paying attention can help you find a stock that consumers continue to love even when money is tight.
As always though, be sure to do your own research and only ante up if you believe in the future success of the company.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.