Many investors who are fearing the worst are starting to fortify their portfolios with recession-proof stocks. Historically, recessionary periods tend to see the stock market slide as businesses struggle against rising costs and skittish consumers.
But it’s worth noting that not all businesses feel the pain of a recession equally. Some are more insulated than others and can offer investors shelter from the economic storm. So where can you find these so-called recession stocks?
First, consider defensive industries that aren’t inherently tied to economic movements, like utilities and defense. Another recession-proof pick would be brand-powerful companies uniquely positioned within their sector. Customers who know and trust a particular name are more likely to continue paying for it.
Finally, consider consumer staples that are likely to be purchased despite people tightening their belts. That can mean necessities like food and toilet paper, as well as mobile phones and internet service. While consumers may stretch out the useful life of their products, they’re unlikely to stop buying them all together. That makes companies operating in this space a little safer.
Let’s take a deeper dive into three such stocks.
Coca-Cola (KO)
You’d be hard-pressed to find a more recognizable brand than Coca-Cola (NYSE:KO). This is the reason the food and beverage giant is one of the recession stocks worth considering. Not only has the group weathered its fair share of economic storms over many decades, but also most consumers are willing to open their wallets for its popular drink brands.
Evidence lies within the most recent results, where price hikes were primarily the cause of double-digit revenue growth. Coca-Cola successfully passed on rising costs to its consumers thanks to its solid brand power, a real benefit in periods of economic turmoil.
However, KO’s strength is more than just its name. The company also has a unique operating model in which it doesn’t own its manufacturing sites. Rather, it has a stake in smaller, local companies that bottle its products. Although this poses some risk, so far the group’s been able to keep its costs down and margins fat.
BAE (BAESY)
Defense is a solid place to look for recession stocks because no matter the economic weather, governments will always be looking to protect themselves. BAE (OTC:BAESY) does just that, with a portfolio of fighter jets, aircraft carriers, and other heavy duty military equipment. It’s the kind of industry that’s costly to enter, so competition is low. Yet is also sees new orders flooding in no matter the economic climate.
In addition, BAE has a lot of oversight of future revenue because its contracts span years into the future and are relatively reliable. At last check, the group’s order book was well beyond $68.5 billion. BAE has been using its income to improve research and development and beef up its portfolio for the future. This is a smart bet as countries look to continuously update their defense systems. While the group could fall prey to rising costs weighing on margins, the long-term case is intact making it a good choice for investors looking to ride out turbulence ahead.
ASML (ASML)
As a semiconductor manufacturer, ASML (NASDAQ:ASML) it makes the machines that are needed to create semiconductors. Having taken decades to develop their products, ASML is now the only company supplying them. It also supplies common deep ultraviolet machines, which make less complex chips.
As you might expect, there’s a huge demand for ASML’s wares. The group’s order backlog is well beyond its revenue, which is expected to drive growth of over 25% this year. But ASML isn’t resting on its laurels. In addition to the one-of-a-kind machines, the group also offers service packages to keep them running properly. This consistent revenue stream is an important part of the case for “buy” for its stock, and one that should carry it nicely through all kinds of economic conditions.
On the date of publication, Marie Brodbeck held BAE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
