Although recent data points suggest that investors should anticipate a robust bull market ahead, a potentially upcoming plot twist might favor the best stocks for looming recession. At first, such a notion seems ridiculous primarily because of the most recent May jobs report. With the economy adding more employment opportunities than anticipated, what’s the big worry?
While a positive development, the reality of a strong labor market is that more dollars chase after fewer goods. Obviously, that’s an inflationary dynamic – the very circumstance that the Federal Reserve wanted to avoid. Therefore, it’s possible that the central bank could continue to aggressively raise rates. If so, at some point, the economy might enter a downcycle, benefitting safe stocks for recession.
Moreover, retailers have noticed that consumers have been trading down to cheaper alternatives for commonly purchase items. Specifically, even well-off customers have traded down to cheaper forms of protein. Thus, all might not be so well, providing a cynical catalyst for these top stocks for economic downturn.
Procter & Gamble (PG)
A multinational consumer goods giant, Procter & Gamble (NYSE:PG) might as well symbolize the quintessential example of best stocks for looming recession. While it’s a slightly different narrative, when the Covid-19 crisis struck, Procter & Gamble proved its worth. Providing everyday necessary products, the company hardly rates as a sexy investment. Nevertheless, it pretty much will always be relevant.
Financially, the consumer goods enterprise’s main strengths lie predictably in its profitability metrics. For example, its trailing-year operating margin stands at 21.7% while its net margin (during the same period) clocks in at 17.69%. Both stats rank well above their respective sector median values. In addition, P&G’s return on equity (ROE) soars at 31.72%, outflanking 94.42% of its peers.
Operationally, the company’s three-year revenue growth rate (on a per-share basis) is 5.8%, which is roughly in the middle for the underlying industry. However, its EBITDA growth rate comes in at 31.2%, beating 80.91% of its peers. Finally, analysts peg PG as a consensus moderate buy. Their average price target lands at $165.44, implying almost 15% upside potential.
A multinational soft drink icon, Coca-Cola (NYSE:KO) commands attention for its namesake line of beverages. Fundamentally, the company should attain relevance as one of the best stocks for looming recession thanks to the trade-down effect. For instance, as more businesses start cracking the whip regarding return-to-office mandates, Coca-Cola could become the cheaper caffeine-providing alternative.
Further, as people return to the drudgery of the nine-to-five grind, they’ll need a pick-me-up. For that, it’s difficult to beat the value proposition underlining Coca-Cola. Thus, KO appears a solid case for safe stocks for recession. Indeed, if a downturn materializes, people will likely be desperate to keep their jobs. And that means showing up to the office everyday if necessary.
In fairness, Coca-Cola’s financials aren’t exactly remarkable. However, its main strength lies in its profitability. Its net margin clocks in at 22.69%, beating out 94.29% of the competition. Also, its ROE impresses at 41.12, indicating an extremely high-quality enterprise. Lastly, analysts peg KO a consensus strong buy. Their average price target hits $69.94, implying over 15% upside potential.
As an insurance company, Allstate (NYSE:ALL) enjoys a concept known as a captive or hostage audience. Put another way weather we suffer a recession or not companies like Allstate will likely be permanently relevant. For example, in the U.S., most states require drivers to have some form of auto insurance. Basically, recession or no recession, drivers will have to pay for their insurance coverage. Cynically, ALL’s an ideal play for top stocks for economic downturn.
In full disclosure, insurance enterprises don’t usually have sterling financials and Allstate is no different. Conspicuously, the company’s balance sheet could use some work. Its cash-to-debt ratio sits at 0.08 times, ranked worse than 95.22% of its peers. As well, its equity-to-asset ratio of 0.18 is rather middling.
On the flipside, Allstate represents a viable idea for best stocks for looming recession thanks to its three-year revenue growth rate of 14.2%. This stat ranks better than 82.68% of the competition. Even with that robust performance, the market prices ALL at a trailing sales multiple of only 0.55. As a discount to revenue, Allstate rates better than 72.41% of other insurance players. In closing, analysts peg ALL as a consensus moderate buy. Their average price target comes in at $134.27, implying 22% upside potential.
Phillips 66 (PSX)
A downstream energy specialist, Phillips 66 (NYSE:PSX) focuses on the refining, chemical and retail components of the hydrocarbon value chain. Very quickly, Phillips 66 differs from upstream players, which deal with exploration and production and midstream enterprises, which involve storage and transportation. Fundamentally, downstream companies could enjoy a rise in demand thanks to the aforementioned return-to-office dynamic.
More than likely, the audience may be tired of hearing about the return of the nine-to-five grind. However, as an investor, this shift imparts significant implications, especially for best stocks for looming recession. Again, as worker desperation heightens amid concerns about an economic slowdown, people will see to be counted. To paraphrase tech entrepreneur Elon Musk, you can’t do that phoning it in.
Obviously, for Phillips 66, the benefit centers on a rising total addressable market. Currently, the company enjoys a three-year revenue growth rate of 14.9%, which is quite impressive. However, my argument is that sales should increase as companies recall their employees back to the cubicles. Making another case for reliable stocks in recession, analysts peg PSX a consensus strong buy. Their average price target reaches $121.44, implying over 25% upside potential.
Sometimes, the most obvious ideas for best stocks for looming recession turns out to be the most effective. Therefore, I’m putting my eyes on Kroger (NYSE:KR). Again, we saw similar trends play out during the initial onslaught of the Covid-19 crisis. While it’s a slightly different tale, people nevertheless rushed to their local grocery stores to buy essential goods.
Put another way, Kroger benefits from a permanently relevant business profile. Even amid the threat of a pernicious pandemic, people needed access to everyday products. I’m certain a similar framework will appear for KR should a recession turn up. Therefore, Kroger makes sense as one of the reliable stocks in recession.
Even better, Kroger offers an enticingly discounted proposition. Right now, the market prices KR at a forward multiple of 10.31. As a discount to projected earnings, Kroger ranks better than 80.3% of the competition. Operationally, it’s no slouch either, printing a three-year revenue growth rate of 10.3%, above 71.43% of sector players. Looking to the Street, analysts peg KR as a consensus moderate buy. Their average price target lands at $59, implying over 28% upside potential.
To be completely upfront, Alarm (NASDAQ:ALRM) represents an unorthodox and risky candidate for best stocks for looming recession. However, ALRM has held up well, gaining almost 5% of equity value since the Jan. opener. Much of this positively may center on its core business of home automation and monitoring services. It’s cynical but should a recession appear, personal safety will likely take precedence.
Now, to present a fair assessment, much debate exists around the idea that recessions spark increased criminality. However, as the World Economic Forum pointed out, recessions usually lead to an increase in youth unemployment. Further, youth who graduate during economic downturns are more likely to engage in crime.
Whatever the academic reality is, people today are vey much concerned about increases in criminal activity and the broader criticism of law enforcement that have hurt retention efforts among police departments. Just by logical deduction, ALRM appears one of the more relevant stocks to buy before recession.
Further, analysts peg ALRM as a consensus strong buy. Their average price target hits $64.50, implying 25% upside potential.
Kelly Services (KELYA)
An office staffing company with a global footprint, Kelly Service (NASDAQ:KELYA) might seem irrelevant as one of the best stocks for looming recession. After all, the latest jobs report came in hotter than expected, implying that a recession may be well off. Still, the Fed might respond aggressively to the implied inflationary dynamic. After so much intervention, the action could lead to a downturn.
If so, I believe Kelly represents a candidate for safe stocks for recession. Naturally, should the economy slow down, more companies will issue mass layoffs. In turn, workers will likely become desperate. As a side note, this is why employees should be careful about putting up too much of a fuss regarding back-to-office initiatives. You don’t want to get a bad reputation at a bad time.
Now, Kelly Services stands out from other employment agencies because of its diverse connections. In other words, the company isn’t just limited to certain professional fields. It also offers opportunities in warehousing and manufacturing roles. Hey, desperate times call for desperate measures. On a final note, analysts peg KELYA as a consensus moderate buy. Their average price target stands at $25, implying nearly 35% upside potential.
|PG||Procter & Gamble||$144.80|
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.