The stock market has entered a correction. The S&P 500 has slipped 10% from its prior highs, falling back to levels last seen in May. And other parts of the market, such as small-cap stocks, look even worse.
There are many reasons for the selling, including inflation, interest rates and mounting geopolitical tensions. However, a recession is growing into a huge concern as well. With consumers facing increasing pressure, a drop-off in economic activity seems likely in 2024.
The good news is certain types of stocks can hold up and even make gains during hard economic times. These three top stocks to buy for a recession are good choices for these volatile times.
Diageo (DEO)
Diageo (NYSE:DEO) is a multinational spirits company. While based in the United Kingdom, the majority of its sales occur in North America and other international markets. It is known for Johnnie Walker, Ciroc, Tanqueray, Smirnoff, Don Julio and Guinness beer — among other brands.
Diageo is the quintessential recession-proof stock. Alcohol sales tend to be stable regardless of economic conditions; people drink to both celebrate success and commiserate during the hard times, after all.
DEO stock has slumped over the past year. After a boom year in 2022 as the economy reopened and people rushed to social events, sales activity returned to more normalized levels. In addition, analysts have speculated that weight loss drugs may eventually cause alcohol sales to decline.
These fears have driven DEO stock down to less than 18 times forward earnings, putting Diageo near its lowest valuation of the past decade. That makes it a great defensive stock to pick up ahead of a potential economic downturn.
Public Storage (PSA)
Public Storage (NYSE:PSA) is America’s largest self-storage real estate investment trust (REIT).
Shares have risen from a (split-adjusted) $10 each in 1993 to more than $238 per share today. That speaks to the resilience of Public Storage’s business model and its ability to thrive despite multiple financial crises along the way.
In fact, storage performed surprisingly well compared to most other REITs during the 2008 economic chaos. When people are foreclosed upon or otherwise change their living situations, it often leads to additional incremental storage demand. In this way, storage can be countercyclical and hold up in economic downturns.
PSA stock has slumped thanks to the general malaise afflicting so many REITs: higher interest rates. Public Storage will indeed have to pay more interest on its debts going forward. However, the company has much less risk than most other commercial REITs. Thus, investors should be looking to buy the dip in Public Storage shares today.
Kimberly-Clark (KMB)
Kimberly-Clark (NYSE:KMB) is one of the world’s leading producers of toilet paper and other bathroom products such as soap.
The firm is inherently recession-resistant as most people do not change their consumption of toiletries based on economic conditions. And the company’s products tend to be cheap enough that most folks don’t give their choice of toilet paper or soap brands too much thought — sales should be steady regardless of what the economy does.
That said, there is an opportunity in KMB stock right now. The company’s sales surged in the early days of the pandemic as people stocked up on essential goods. Kimberly-Clark has been in a slump since then as sales drifted back down to normal. Meanwhile, profit margins fell due to higher commodity and labor costs.
Counterintuitively, a recession might help Kimberley-Clark’s cause. An economic downturn could lower the cost of inputs such as wood pulp and make the labor market more favorable for employers as well. All this is to say that Kimberly-Clark could actually see profits rise if the economy dips. In any case, KMB stock is at a fine entry point here near its 52-week lows.
On the date of publication, Ian Bezek held a long position in DEO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
