5 Safe Stocks To Buy During A Recession

Safe Stocks To Buy During A Recession: Investors know there is no such thing as a safe stock. Companies can face any number of unexpected challenges, and even the most well-established can run into trouble. However, from a risk perspective, certain businesses are far more likely to survive and thrive when the threat of recession looms. Buying shares in these relatively safe stocks is a smart choice when markets are particularly volatile. 

Overall, the industries that enjoy higher-than-average growth during tough economic times are those that produce the sorts of necessities consumers prioritize when budgets get tight.

These are nine industries to focus on when choosing recession-proof investments: 

• Consumer Staples – Household goods and hygiene products (e.g. Clorox, Colgate-Palmolive, and Procter & Gamble) 
• Cosmetics Companies – Makeup and personal care products (e.g. Estee Lauder) 
• Discount Retailers – Low-priced consumer staples (e.g. Dollar Tree)
• Funeral Service and Supply Companies – Removal and preparation of remains, caskets (e.g. Carriage Services, Matthews International, and Service Corporation International)
• Global Brands – Well-diversified in international markets (e.g. Coca Cola) 
• Grocery Stores – Food and beverages (e.g. Costco, Kroger, and WalMart)
• Healthcare – Non-discretionary pharmaceutical products and medical services (e.g. Eli Lilly) 
• Manufacturers and Distributors of Alcoholic Beverages – Beer, wine, and spirits (e.g. Anheuser Busch) 
• Utilities – Fuel, water, and energy (e.g. American Water Works Company) 

Of course, within industries, certain companies are more resilient than others. Sometimes, they have a competitive edge in terms of branding and consumer preferences.

Other times, they have the structure, financial strength, and versatility to adapt to changing economic conditions. These are five companies that top the list when it comes to safe stocks to buy during recession. 

American Water Works = Diversified Utility Play 

Under the utilities umbrella, American Water Works stands out. The company is focused on reliable delivery of clean, safe, affordable water to approximately 15 million consumers in 46 states.

American Water Works was founded in 1886, and today it leads the industry as the largest, most geographically diverse water and wastewater company in the country. 

Clearly, water is vital no matter the economic conditions, which makes American Water a solid choice for investors. Better yet, the company has little competition, as it holds a monopoly in many markets. American Water has a strong plan for growth in coming years, primarily centered on acquiring and integrating small municipal water services into the larger organization. 

Second quarter earnings were announced on August 6, 2000, and American Water noted a gain despite challenging conditions. Its GAAP diluted earnings came in at $0.97 per share, up from $0.94 during the same period last year.

Management has indicated that the impact of COVID-19 might have cost the company around $0.05 per share, and they have projected total 2020 earnings to come in between $3.79 and $3.89 per share. 

Investors enjoy a reliable dividend, which has gone up each year since the company’s IPO in 2008. The dividend yield currently stands at 1.5 percent.

When all of these factors are combined, it is clear that American Water is a smart choice for investors in search of a safer stock to buy during the recession. 

Boom Or Bust: Clorox Products Are In Demand  

Consumer staples is a wide-ranging category of products that people continue to purchase regardless of strains on their budget. Cleaning and personal hygiene items are high on this list.

Clorox owns a massive collection of leading brands in this space. In addition to those that bear the Clorox name, the company is parent to Brita, Burt’s Bees, Fresh Step, Hidden Valley, Kingsford, Liquid-Plumr, and Pine-Sol, among others.

Total 2020 fiscal year sales came in at $6.7 billion, boosted by the uptick in demand for cleaning supplies. The most recent quarter closed with a 22 percent year-over-year increase in sales. 

Some investors are concerned that this growth is unsustainable. They fear that buying now, with share prices up 50 percent year-to-date, might mean losses in coming months. Analysts don’t see things quite the same way.

First, the demand for cleaning supplies isn’t expected to abate anytime soon. Second, Clorox is at the end of a massive seven-year project to amplify top brands, strengthen relationships with the healthcare industry, and rework its supply chain.

From a financial perspective, the project is already delivering results, and business leaders expect additional financial gains in coming months and years. 

Clorox has a strong history of increasing dividends, and it pays out reliably. To better understand the pattern of growth, consider that Clorox offered dividends of $0.81 per share in the year 2000. By 2019, that figure was $3.94 per share. 

In short, Clorox’s August 3, 2020, quarterly earnings announcement was nearly all good news. Sales were up 22 percent year-over-year, reflecting double-digit growth in nearly every segment of the business.

While those buying in today might pay more per share than they would have this time last year, there is still plenty of opportunity for this recession-proof business. 

Coca Cola Is A Rare Dividend Aristocrat

Coca Cola has a place in most major portfolios, including that of holding company Berkshire Hathaway.

Warren Buffett, the master investor who manages Berkshire Hathaway, bought a relatively large stake in the company decades ago.

In 2019, he told clients that his cost basis for the Coca Cola shares was just $3.25. That means his initial $1.28 billion investment is worth roughly $18.1 billion as of mid-July 2020. 

That isn’t to say that Coca Cola is infallible. In fact, the company has had substantial challenges in the first half of this year as a result of the global pandemic. Its most recent quarterly financial report noted  a 16 percent decline in global unit case volume, a 28 percent decline in net revenue, and a 32 percent drop in earnings per share. 

Despite these disappointing results, many investors are adding to their Coca Cola holdings. It’s an opportunity to buy shares at a discounted price, and they are secure in the knowledge that Coca Cola has the strength to come back from the current market challenges. 

Some of the advantages Coca Cola has include: 

• Ranks in the top 10 of the world’s most valuable brands year after year – for 2020, Coca Cola is number six on Forbes’ World’s Most Valuable Brands list
• Membership in the exclusive Dividend Aristocrat category, with 58 consecutive years of annual dividend increases 
• Constant innovation gives Coca Cola the ability to adapt to changing consumer tastes – as sugary sodas fall out of favor, Coca Cola has continued growing revenue by expanding into coffee, water, and energy drinks
• Though sales volume dropped 25 percent in April 2020 – the height of the COVID-19 outbreak – it is rapidly recovering, down by only 10 percent in June 
• Coca Cola has embraced the digital revolution, exploring e-commerce and products intended for at-home consumption 
• Few companies have the geographic diversity that Coca Cola has developed – the company’s products can be found in every country in the world, with the exception of North Korea and Cuba

This type of global diversification is hard to match, making Coca Cola a smart choice for protecting your portfolio from market downturns. 

Colgate Palmolive Has Paid Dividends Since 1895 

Colgate Palmolive may not have the most exciting product lines, but in a recession, these are the products that sell: oral care, personal care, home care, and pet nutrition.

Within those categories, Colgate Palmolive owns some of the biggest brands, leading the market in many specific categories. Examples include Ajax, Hill’s Science Diet,  Irish Spring, Murphy’s Oil Soap, SoftSoap, and Speed Stick.

Oral care tops the list in terms of generating revenue for the company, making up 46 percent of annual sales. That makes sense, given the fact that Colgate serves 41 percent of the world’s toothpaste consumers. 

Colgate Palmolive hasn’t made it through 2020’s economic volatility completely unscathed. Share prices have certainly dropped since February. However, many analysts believe this is an opportunity for new investors to buy in at a discount.

The big draw is Colgate’s reliable dividend, which has been paid consistently since 1895. The company also qualifies as a Dividend Aristocrat, given it has raised its dividends each year for the past 57 years. For the moment, that payout delivers a yield of 2.4 percent per year to shareholders. 

Eli Lilly 

It goes without saying that consumers continue to pay for non-discretionary healthcare whenever possible, regardless of economic conditions. That means pharmaceutical companies are in a solid position, recession or no recession.

Granted, the COVID-19 crisis has been a little different in terms of market impact, as many people are putting off preventative and non-urgent care so as to stay away from potential hotspots for coronavirus exposure.

Nonetheless, Eli Lilly is well-positioned to profit in the current economic climate, as it is hard at work on promising treatments for COVID-19 symptoms. 

As of early July, Eli Lilly’s stock prices were up by more than 24 percent year to date, despite the fact that the industry as a whole was down.

Compare Eli Lilly’s gains to the SPDR S&P Pharmaceuticals ETF, which tracks this category. It had dropped more than five percent year-to-date as of July 8, 2020. Share prices did come down a bit after the most recent earnings report, but most analysts are confident that they will bounce back quickly. 

Eli Lilly’s success comes, in part, from its strong line of diabetes treatments. Today, more than 34 million people in the United States have been diagnosed with the disease, and another 88 million are considered high-risk.

Eli Lilly is a market leader in products for managing diabetes, and that market is expected to grow in coming years. 

Adding to that success, Eli Lilly is close to the end of the trial phase for a new breast cancer treatment, and results have been quite positive. If approved for use by the FDA, the drug may increase survival rates for breast cancer patients. 

Finally, Eli Lilly is hard at work on options for increasing survival rates in COVID-19 patients. It has two separate antibody therapies in clinical trials, and it is exploring opportunities to repurpose existing drugs for use in the coronavirus arena. If any or all of these are successful, Eli Lilly’s stock is sure to soar. 

In its most recent earnings report, Eli Lilly delivered impressive results, given current economic challenges. Adjusted net income for the quarter was up by $1.7 billion, which represents a 24 percent increase year-over-year.

Earnings per share improved by 26 percent, totaling $1.89 per share, which exceeds analysts’ expectations of $1.56 per share. Business leaders predict full year earnings per share to total between $7.20 and $7.40, which is an increase from previous projections of $6.70 to $6.90. 

Stocks to Buy During a Recession: The Bottom Line

When it comes to buying stock during a market downturn, there are no guarantees. However, you can reduce risk by choosing strong companies in industries that historically thrive during recessions.

Leading organizations in the consumer staples, healthcare, and utilities space are smart choices when uncertainty is at its peak. 

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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.