As the pain of a global recession is already being felt and markets have been volatile, investors are searching for companies that can withstand the macroeconomic headwinds. Firms that are recession-proof, primarily provide goods and services that are considered necessities, such as food, beverages, and household products which are always needed by consumers.
These firms tend to have strong fundamentals and generate consistent cash flows during any economic environment.
On the other hand, consumer electronic device companies such as Apple Inc. AAPL could see a decline in sales, as consumers avoid purchasing a new phone, as this is more of a want.
The sectors that are typically the most recession-resistant are Consumer Staples, Healthcare, and Utilities. Although it is important to note that diversification is key, investing too much in recession-proof stocks could leave you missing out on higher returns when the market recovers.
Furthermore, investors should remain wary of valuations as the S&P 500 P/E ratio is trading at 18.24x, and could fall lower after earnings revisions. With that in mind, here are four stocks that are likely to remain strong during a recession.
Walmart Inc. WMT was up 18%, while the S&P 500 was down 38% during the 2008 Financial Crisis. Walmart has a competitive advantage in allowing its customers to save money and buy more, as its retail stores offer "everyday low prices." Walmart operates approximately 10,500 stores and clubs under 46 banners in 24 countries and eCommerce websites. In the United States under its namesake banner, around 56% of sales come from groceries, 32% from general merchandise, and 11% from health and wellness items. Walmart also owns Sam's Club, an American chain of membership-only retail warehouse clubs, and ranks second in sales volume amongs retail warehouse clubs, as of 2019.
Next, Anheuser-Busch InBev BUD is the largest brewer in the world and one of the world's top five consumer product companies, as measured by EBITDA. The beer industry has faced plenty of consolidation over recent years, as Anheuser acquired SABmiller in 2016, and now controls five of the top 10 beer brands by sales and 18 brands with retail sales of over $1 billion. Anheuser is focused on decreasing its costs, while increasing its economies of scale through its synergies with its acquired brands.
Third, we have The Clorox Company CLX which is trading much closer to its fair value than other recession-proof companies. Clorox has been in business since 1913, and has a wide economic moat as it offers a diverse array of cleaning, home care, and wellness products. Some of Clorox's top brands include Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Kingsford, Fresh Step, Glad, Hidden Valley, KC Masterpiece, Brita, and Burt's Bees.
Lastly, NextEra Energy Inc. NEE is America’s largest electric utility that sells more power than any other utility, providing clean, affordable, reliable electricity to approximately 5.8 million customer accounts, or more than 12 million people across Florida. NextEra Energy’s competitive advantage is that it is not immediately phasing out its carbon-emitting resources, but instead leveraging low-cost renewables to drive energy affordability for customers. NextEra has invested more than $14.6 billion in clean energy infrastructure in 2021, and more than $110 billion over the last decade, being the world's largest generator of renewable energy from the wind and sun, and a world leader in battery storage.
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