Although the latest jobs report suggests that an economic downturn might not materialize, the fine print suggests that investors should nevertheless prepare with recession-proof stocks to buy. To clarify, I’m not calling for an imminent collapse. Rather, the point is to be prepared ahead of time in case circumstances go awry.
While the economy added more jobs than anticipated, it’s important to point out that the number of people unemployed for 15 to 26 weeks increased by 179,000 to 858,000. As CNN stated, the data may indicate that it’s taking longer for people to find work. Given the layoffs that continue to this day, it’s not a bad idea to consider safe stocks for recession.
On a more tactical note, the correction that the cryptocurrency market suffered recently suggests that risk-on sentiment may be fading. To avoid bidding up overheated ideas, investors may want to consider the below defensive stocks for recession.
| COST | Costco | $520.97 |
| AWK | American Water Works | $146.03 |
| BG | Bunge | $93.79 |
Recession-Proof Stocks: Costco (COST)
For Costco (NASDAQ:COST), its inclusion as one of the best recession-proof stocks to buy centers on its core consumer demographic. Essentially, Costco members make more money (presumably because they’re more educated) and happen to be younger than some of their big-box retailer counterparts. Put another way, the warehouse-style retailer can grow with its consumer. Thanks to the higher average income, they’re also more insulated economically.
Plus, another reason why COST ranks among the best stocks for economic downturn focuses on its operational resilience. On a per-share basis, Costco’s three-year revenue growth rate pings at 14%, above nearly 80% of its peers. Also, its EBITDA growth rate during the same period comes in at 15.4%, above 65.6% of sector rivals.
As well, Costco enjoys consistent profitability. Its trailing-year net margin stands at 2.55%, beating out 61.72% of its competitors. Overall, it’s one of the stocks to buy before a recession thanks to a higher degree of predictability.
American Water Works (AWK)
Primarily for American Water Works (NYSE:AWK), the inclusion of the entity on this list of recession-proof stocks is all about natural monopolies. As a utility firm providing water management services, American Water organically commands a steep barrier to entry. Therefore, would-be competitors don’t even try. In fairness, AWK slipped nearly 5% since the Jan. opener.
However, the red ink could allow a relative discount for one of the defensive stocks for recession. Admittedly, the financials don’t seem that enticing. For example, the company’s balance sheet seems rough, particularly with a low cash-to-debt ratio of 0.02 times. Also, AWK trades at a forward multiple of 30.65, which stands on the high side.
That said, American Water also benefits from a captive or hostage audience. With the aforementioned natural monopoly, its consumers have little choice but to pay up. Unsurprisingly, then, one of AWK’s core strengths lies in its consistent profitability and an ultra-high net margin of 21.4%. Cynically, then, it’s one of the top safe stocks for recession.
Bunge (BG)
Finally, Bunge (NYSE:BG) makes the list of recession-proof stocks to buy because of an unignorable reality. No matter how advanced we become as a civilization, we will always need nutritional sustenance. As an agribusiness and food company, Bunge basically benefits from permanent relevancy. Now, that doesn’t mean it’s always a top buy. However, it’s a great idea to pick up if you anticipate a downturn.
Yes, so far this year, BG slipped 2% and on a trailing-year basis, it’s down nearly 9%. Frankly, the red ink won’t change the thesis that if the market favors risk-off assets, BG would be one of the best stocks for an economic downturn.
As well, the softness in the charts makes Bunge undervalued. Presently, the market prices BG at a forward multiple of 8.35. As a discount to projected earnings, Bunge ranks better than 88.84% of the competition. Also, it’s worth pointing out that the company features a three-year revenue growth rate of 14.7%, outflanking 73.86% of its peers. Also, its book growth rate pings at 18.7%, above 81.36% of rivals.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
