SPECIAL REPORT The Top 7 Stocks for 2024

3 Top Stocks to Own If We Head Into a Recession


  • Dividend stocks offer stability in turbulent economic times, providing reliable income streams that can offset capital losses.
  • PepsiCo (PEP): The company’s profitability is improving, but it requires patience from investors.
  • Restaurant Brands (QSR): This stock offers value to investors seeking both income and growth opportunities at an attractive price.
  • McDonald’s (MCD): This fast food giant has shown impressive strength in both its fundamentals and technical performance.
best stocks for recession - 3 Top Stocks to Own If We Head Into a Recession

Source: bangoland / Shutterstock

Investing in defensive stocks can provide stability during market volatility. These are generally financially stable, well-established companies that tend to perform well regardless of market conditions. Including such stocks in your portfolio can help mitigate the impact of market turbulence.

Of course, these stocks aren’t absolutely prone to volatility. A downturn will likely reflect poorly for their valuations, alongside all their peers.

However, a combination of strong cash flows and consistent dividend payouts can provide a floor beneath their stock price. Accordingly, for those concerned about what’s to come, here are three top picks to consider as ways to add defensiveness right now.

PepsiCo (PEP)

Cans of PepsiCo's Pepsi soda are in a bucket of ice.
Source: suriyachan / Shutterstock.com

PepsiCo (NASDAQ:PEP) stands out as a lucrative investment option with a projected 8% earnings growth and strong performance in the first quarter. In addition to its renowned soft drink brand, PepsiCo’s snack food division sets it apart from competitors, allowing the company to offset higher input costs. Aggressive investments in advertising and marketing further enhance its market presence.

Moreover, Pepsi’s mid-July earnings update showed an impressive organic sales growth of 13%, only slightly lower than the previous quarter’s 14% surge. CEO Ramon Laguarta expressed satisfaction with the company’s strong business momentum. Price increases played a key role in driving growth, although overall volume declined in the global food and beverage segments. However, certain segments, like Frito-Lay in the U.S., experienced significant organic sales growth of 14% with a slight increase in volume.

The company’s pricing power should insulate its cash flows from any future downturn. Like the other players on this list, Pepsi’s products are considered small luxuries that should perform well in a world with stressed-out individuals.

Restaurant Brands (QSR)

A photo of a Burger King light-up sign outside a Burger King restaurant representing QSR stock.
Source: Savvapanf Photo / Shutterstock.com

Restaurant Brands (NYSE:QSR) is gaining momentum after a strong quarterly performance, particularly driven by its Burger King segment. The company’s investments in its brands are paying off, positioning it well in the evolving consumer landscape. As economic conditions change, Restaurant Brands is expected to benefit from the shift towards more affordable fast-food options. With a successful quarter and further growth potential, investors have reasons to be optimistic about the company’s future prospects.

Additionally, Restaurant Brands has a strong global presence, with over 29,000 restaurants in 100+ countries. The company’s financial performance has been impressive, with total revenues and adjusted EBITDA growing over 9.5% and nearly 11% respectively in the first quarter, surpassing industry averages. It has also delivered exceptional stock market returns, outperforming the S&P 500 with a total return of 56% in the past year. This success can be attributed to the company’s diverse brand portfolio and extensive operational scale.


McDonald's restaurant in Thailand.
Source: Tama2u / Shutterstock

McDonald’s (NYSE:MCD) may appear riskier than the other companies on this list, due to the growing emphasis on healthier eating among younger consumers. However, social normalization trends and hybrid work schedules can benefit the fast-food giant. Increased demand for breakfast options and a cost-effective alternative to expensive coffee shop beverages make McDonald’s an appealing choice. While not associated with healthiness, McDonald’s stands to benefit from these factors.

McDonald’s stock has been on an upward trend, reaching new highs and displaying bullish signals. It has surpassed the 50- and 200-day moving averages, and if it breaks above the $300 level, it could gain further bullish momentum. The company reported strong first-quarter sales growth, with a 13% increase in all geographic regions and higher profit margins. Its revenue reached $5.9 billion, and earnings per share rose by 66% year-over-year.

Additionally, their global presence ensures a reliable cash flow and mitigates the impact of economic fluctuations in specific countries. Shareholders were rewarded with a 10% increase in the dividend payout, making MCD an attractive dividend stock with a yield of 2.06% and a quarterly payout of $1.52. Thus, MCD stock provides passive income and long-term upside potential, even at a premium price.

On the date of publication, Chris MacDonald has a LONG position in QSR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2023/07/3-top-stocks-to-own-if-we-head-into-a-recession/.

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