Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
COVID-19 triggered a severe economic downturn across the globe, firmly cementing its notoriety as the worst economic decline since the Great Depression. The COVID-19 stock market crash sent chills down the spine of every stock market enthusiast.
What are the Best Stocks in an Economic Recession?
There was no way the U.S. stock market was escaping the heat of the pandemic. By late February, we saw a substantial drop from the Dow Jones Industrial Average not seen since 2008.
Yet in all these, some companies are thriving in the face of the recession. Surprisingly, there are still a number of top stocks in an economic recession.The following list explains six of our top picks.
Globally, especially in the U.S., the retail space was ravaged by the pandemic, with over 260,000 stores forced to shut down. But right in this financial storm, Walmart was growing in leaps and bounds. Interestingly, all of Walmart’s 5,355 stores in the United States remained open as the pandemic raged.
Demands were swelling so much that Walmart has employed more than 235,000 people counting from mid-March. The company shows good financial health at the moment as its quarterly sales in the United States rose by 10%, with an accompanying 74% climb in e-commerce sales.
Relax, this is no fluke. Walmart’s stocks have shown characteristic resilience in the face of recession for a long time coming. In the 2009 Great Recession, Walmart’s stock recorded a total-return basis of 9%. Within this span, the S&P 500 index shrank by 34%.
So far, since the bull market consolidated on February 19, 2020, Walmart stocks have recorded a 3% climb against a 4% drop in the S&P 500 index.
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While the pandemic was busy mauling the restaurant industry, alcohol sales were climbing. By the week ending March 28, alcohol sales had jumped 22% compared to last year. Online liquor particularly is riding the wave, with a 291% growth on a year-over-year basis.
Statistics from WineDirect reveals that in March 2020, Direct-to-Consumer (DtC) sales for drinks went up by 40% compared to last year. The increased adoption of online sales largely powered this climb. Surely, this increase covered up for 70% of sales, which were lost to the closure of bars and tasting rooms due to the pandemic.
Traditional branded premium spirits giants like Diageo are better positioned to beat recessions. Unsurprisingly, Diageo (who owns eminent brands like Guinness, Johnnie Walker, Smirnoff, Crown Royal) savored growth in March 2009, when the Great Depression was at it fiercest. This could be attributed to the cultural inclination of drinkers to resort to strong brands with enviable heritage.
It is largely expected that Diageo would survive the coronavirus recession with a sustained accent in liquor sales.
Unilever is uniquely stationed to survive severe recessions. Unilever owns brands like Dove Soap, Breyers ice cream, and Axe personal care products. Food markets – just like personal care markets – barely feel the direct impact of a recession as they are essentials and almost fundamental to the consumer’s everyday life.
During the Great Depression, Unilever’s sales climbed to 23.58 billion euros up from 22.1 billion euros. According to Paul Polman, then CEO of Unilever during the Great Depression in 2009, “consumers postpone buying cars, televisions and that frees up a lot of money to spend on everyday needs. We don’t see personal care or food markets go down substantially.”
Unilever’s 2019 fiscal reports showed revenue growth of 2.9%. However, its 2020 Q1 trading reports showed flat sales with a 0.2% rise in sales volume wiped off by a 0.2% slash in pricing. This may appear gloomy, but deeper examination spurts hope.
First, Unilever is poised to expect a sharp resurgence if the economy opens speedily. More than this, Unilever is gaining increased marketable prominence as a global sustainability leader.
Sitting nicely at the 46th position in the 2020 Corporate Knights’ Global 100 list of the world’s most sustainable corporations, Unilever’s ambitious socio-environmental targets of reducing (by 50%) its products’ environmental footprint in 10 years gives it a strong appeal in the eye of investors.
4. Procter & Gamble
A careful inspection of Procter & Gamble’s brand inventory shows stocks with impressive resilience. Thanks to its staple product line, P&G stocks don’t quickly come tumbling down as soon as a recession occurs.
The majority of P&G products (cutting through the likes of Crest toothpaste, Oral B toothbrushes, and Head & Shoulders shampoo) are consumer products that have virtually become part of our everyday life.
P&G’s Q1 for 2020 reports shows that overall net sales went up by 5%. Accordingly, organic revenue also climbed by 6% within this quarter. P&G’s organic sales in the home-care and fabric niches saw hikes of 10% in the first quarter. Similarly, P&G’s family care and baby business enjoyed a 7% rise in organic sales. This was despite P&G’s Chinese market (incurably its second-biggest international market) shrinking.
In all, P&G stocks have impressive resiliency, which allows it to survive the economic stress of a recession. The company’s stocks (within the personal care and cosmetic industry group) sit at #14 regarding Composite Rating.
This ranking may purport that P&G stocks are well behind the leaders, but P&G has the unique strength of being this industry group’s singular blue-chip stock.
Indeed, P&G stocks’ reduced volatility (or enhanced stability) means you can more comfortably hold on to it than other relatively spontaneous stock movements. Despite being reputed for its conservative rise – characteristic of blue chips – P&G stocks have across the last five years, admirably measured up with S&P 500’s price performance. Consequently, within the last 5 years, P&G stocks – alongside the S&P 5 00 index – has produced over a 51% return.
Costo smashed the skepticism of stock market analysts (about its member retention capacity) during the 2009 Great Recession. Many feared Costo would suffer a substantial decline in cardholders, but Costo answered emphatically.
Costo had a member capacity of 27,500 (in terms of primary cardholders) in 2017. However, its size swelled up to 30,600 primary cardholders in 2009. This equals a growth of 11.3%.
With another recession rearing its head in light of the COVID-19 pandemic, Costo could be a worthy refuge for investors. 2020 has not been the typical miserable story for Costo.
Unlike other retailers, total net sales in the 5 five weeks ending April 5, went up by 11.7% from the $13.87 billion accrued in 2019. For March, Costo’s comp traffic shot up by 5.3% in the U.S. and by 3.7% globally.
Costo’s surge during these supposedly challenging months can be traced to a sharp growth in ecommerce activity. Precisely, Costo’s ecommerce sales went up by 48.3%.
Interestingly, Costo didn’t even have as much robust ecommerce mechanism when it weathered the storms of the Great Recession. All these mean that today’s Costo is better furnished to thrive in (or survive) an economic recession.
Rollins holds an excellent 6th position in Kiplinger 15 best recession-resistant stocks. Of course, Rollins merits every single drop of that position. Rollins has defied the odds – rather characteristically – even in the face of the pandemic, with its stocks climbing handsomely by 12% since the inception of the bear market.
This leaves the S&P 500 trailing Rollins stocks by approximately 16 percentage points. Undoubtedly, you wouldn’t expect less from a brand boasting over 2.4 million customers strategically distributed around 800 locations globally.
The bugs and vermin aren’t going on holiday in a recession, right? Rollins retains its position as the biggest pest control brand in the globe. Over the years, Rollins has consolidated its reputation for defying the tides, especially when the market dives down.
Outfitted with a host of renowned pest control companies like Clark Pest Control, Perma Treat, and Orkin, Rollins have enjoyed back to back growth across the last 22 years, with hefty revenue of $2 billion.
When the recession came clapping hard in 2007, Rollins largely ignored it with its stock price holding steadfastly through to 2009 while others were in a heartbreaking free fall. Amazingly, Rollins showed how rude it was to the recession by pocketing record net income and revenue from 2007-2009. Precisely, Rollins’ sales for 2008 went up by 3% in the heat of the recession. Now, tell me if you are not impressed!
2020 has been the same sweet story for Rollins. Sales for last year went up to $2.02 billion, marking a 10.6% growth. Rollins’ Q1 report shows a healthy revenue of $487.9 million. This marks a 13.7% leap from the first quarter of 2019.
Rollins has been able to appreciably insulate itself from the rampaging crisis by leveraging on organic growth revenue from a loyal 2.4 million customer base (spreading cross commercial and residential) while maximizing acquisition opportunities that show up from pest control businesses across American and the globe.
Aside from its gigantic purse, in terms of sufficient liquidity to last it through the recession, Rollins’ stability can also be arguably attributed to it being a predominantly family-owned brand. Would it interest you to know that the Rollins family has 53.2% of the company shares neatly pocketed? This means increased sustainability for the firm, thanks to its strength in long-term planning.
Countries around the world are slipping fast into a recession, and this is no good news. The companies espoused in this guide have performed impressively, largely weathering the storm and posting healthy returns.
This makes them viable to invest in an economic recession. And luckily, a number of top stock market apps make it easier than ever to start investing. Still, ensure you conduct adequate stock research before you make any significant moves.