How does one go about selecting bear market stocks in the middle of what is arguably one of the longest bull-market cycles in the history of U.S. publicly traded stocks? Well, the standard way is to buy stocks that are considered defensive in nature such as those in the consumer staples sector. Recession resistant stocks aren’t necessarily easy to find, but once you see them, keep them in mind.
Of course, with people’s eating habits getting healthier, traditional bear market stocks like Campbell Soup Company (NYSE:CPB) aren’t nearly as attractive as they once were.
Another possibility is to go back to previous recessions or bear markets and find the best-performing stocks that year. It stands to reason that those companies were structured in such a way that investors weren’t nearly as skeptical about the future.
It involves a bit of hindsight and we know the past doesn’t predict the future but it’s probably the best place to start.
Recession Resistant Stocks from 2001 and 2008
Of the recession resistant stocks that were publicly traded during both the 2001 recession — March 1, 2001, to November 1, 2001 — and the 2008 recession — January 1, 2008, to November 30, 2008 — three stocks stand out, all of which achieved an annual return of at least 10% in both recessions.
Recession Resistant Stock #1
The first stock that did well in both recessions is Church & Dwight Co., Inc. (NYSE:CHD) — up 26% and 10% in 2001 and 2008 respectively.
It also happens to be one of my favorite stocks although it’s not having a good year down 4% year to date through May 29, its worst annual performance over the past decade.
One of the many brands Church & Dwight owns is Trojan condoms. According to CEO Matthew Farrell, young kids are having less sex and that’s why condom sales are down.
No matter. Like almost every consumer product, condom sales are cyclical. They’ll come back. Until then, Arm & Hammer and OxiClean will have to do more of the heavy lifting.
Any portfolio, whether intended for weathering a bear market or not, should have recession resistant stocks like CHD in it.
Recession Resistant Stock #2
One of the other really solid recession resistant stocks is no longer a public company. Acquired by DollarTree, Inc. (NASDAQ:DLTR) in 2014 for $10 billion, Family Dollar Stores achieved annual returns in 2001 and 2008 of 14% and 44% respectively.
Although dollar stores have grown more popular with wealthier consumers, it’s the hard-up population in America that’s driving sales. As the nation becomes a country of haves and have-nots, dollar stores will prosper from increased business.
When the next recession hits, you can be sure DollarTree and Dollar General Corp. (NYSE:DG) won’t lose any sleep.
Recession Resistant Stock #3
Flowers Foods, Inc. (NYSE:FLO) is the second-largest producer of packaged bakery foods in the U.S. It’s got 47 bakeries in 18 states churning out bread and other baked goods under brand names such as Wonder and Nature’s Own.
During the 2001 and 2008 recessions, FLO stock gained 95% and 14% respectively. Since the market bottom in March 2009, its stock has more than doubled, although it lost a significant chunk in 2016 as the business went astray.
It’s now in the middle of a transformation that looks to revive its bread business, grow sales, increase the margins and deliver shareholder value.
On May 24, Flowers Foods announced that it was increasing its quarterly dividend by a penny to $0.18 a share for an annualized yield of 3.5%. The latest increase is the 63rd consecutive quarter it’s paid a dividend, a sign the company is generating reasonable cash flow.
With an opportunity to capture market share in the Northeast, Midwest and Plains regions of the country, Flowers has plenty to look forward to whether or not a recession hits.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.