As fears mount of a global economic slowdown, investors should start facing reality and consider acquiring recession-proof stocks to buy. Of course, no investment category offers 100% guarantees – otherwise, everyone would take them. However, certain companies will likely hold up far better than others should circumstances go awry next year.
Fundamentally, all eyes are on the Federal Reserve. Recently, the central bank raised the benchmark interest rate by 50-basis points, reflecting an ongoing commitment to tackle inflation. Indeed, with the November jobs report coming in hotter than expected, the news essentially confirmed that the Fed’s actions throughout 2022 yielded little results. Further, with global markets rumbling, investors are right to be concerned. Below are some recession-proof stocks to buy as market fears mount.
Sempra Energy (SRE)
Quite simply, utility plays like Sempra Energy (NYSE:SRE) rank among the best recession-proof stocks to buy for cynical reasons. Effectively, these enterprises enjoy a hostage audience or captive audience. True, people can choose to go off-grid but let’s face it. Very few people have the commitment to live that lifestyle.
Before you send me an email to explain why you don’t fit that profile, let’s consider some broad research. About 95% of new year’s resolutions relate to fitness goals. After just three months, however, only 10% of folks believe their resolution will last. Given the extraordinary expenses associated with going off-grid, it’s safe to say that most households will never go this route.
For those seeking recession-proof stocks to buy, this piece of human psychology offers great news. Not only is Sempra relevant but it also covers (i.e. monopolizes) many regions of Southern California. Representing the economic engine of the U.S., the Golden State features plenty of residents that will pay their bills.
Recently, the combination of skyrocketing inflation and geopolitical flashpoints bolstered the hydrocarbon energy industry. Naturally, big oil firms like Chevron (NYSE:CVX) benefited handsomely. However, with the wider push to integrate electric vehicles, the future of mobility going electric seems like a foregone conclusion.
Nevertheless, Toyota (NYSE:TM) CEO Akio Toyoda recently stated that the “silent majority” of the auto industry questions the EV-only future. Sure enough, Fox News’ journalism and editorial arms picked up on the concept and the perhaps-borrowed lexicon. In a way, Toyota may have a point. Essentially, the current energy infrastructure might not be ready for full EV integration. And it might not be ready to accommodate 50% integration by 2030, a Biden Administration target. Therefore, those paying attention to the real details (instead of merely the social and political cues) may want to add CVX to their long-term portfolios of recession-proof stocks to buy.
Anyone looking for a traditional investment in recession-proof stocks to buy don’t need to think too hard with Kellogg (NYSE:K). Indeed, the brand practically sells itself during challenging times. Fundamentally, Kellogg caters to critical needs. As I’ve mentioned before, humans require a minimum amount of calories to sustain themselves. As a food manufacturer – specializing primarily in breakfast products – Kellogg brings exceptional relevancies to the table.
Further out, K stock also caters to burgeoning trends. Just prior to the coronavirus pandemic, surveys revealed that younger consumers began embracing plant-based meat products. Not only do the products (generally) taste good and perhaps offers a healthier alternative (though debate rages), they feature sustainability. Unfortunately, the problem has always been economics.
Compared to the real deal, fake meat products unfortunately carry higher prices due to smaller scales. However, with Kellogg having entered the space with its Incogmeato brand, it’s one of the few enterprises that offers credibility. Therefore, it’s worth keeping close tabs on K stock.
Kimberly Clark (KMB)
Another classic example of recession-proof stocks to buy, Kimberly Clark (NYSE:KMB) specializes in personal care products. As the Covid-19 outbreak confirmed, even under duress, people will buy the essentials with whatever money they have (or don’t). Indeed, desperate times call for desperate measures. It’s a harsh way of stating that KMB benefits from inelastic demand.
Products that feature inelastic demand can incur price fluctuations and still enjoy consistent revenue influxes. Because Kimberly Clark’s core products feature revenue predictability – toilet paper, hygiene products, etc. – it’s easier for analysts to gauge performance. Further, during an economic downturn, investors desire some semblance of predictability. KMB provides that in spades.
Also, the company offers fairly decent passive income. Currently, its forward yield stands at 3.43%, well above the consumer staple sector’s average yield of 1.89%. In addition, Kimberly Clark commands 50 years of consecutive dividend increases. That’s a status that management won’t give up on so easily.
Five Below (FIVE)
Should a downturn materialize, investors will likely gravitate toward discount retailers as one of the recession-proof stocks to buy. In this context, Five Below (NASDAQ:FIVE) offers much food for thought. Fundamentally, consumers typically don’t just cut all spending when faced with financial woes. Instead, a concept known as the trade-down effect occurs.
Basically, people will seek out cheaper alternatives of their pre-recession purchase categories until they reach an effective balance between cost and quality. In other words, those that are shopping in a premium retailer now will probably not dig through dumpsters. Instead, they’ll pivot downward step by step until reaching an equilibrium point. For many, Five Below represents said point.
Unlike a pure discount dollar store, Five Below mostly features products priced up to $5; hence the name. However, the stores also offer an assortment of products ranging from $6 to $25, enabling wider choices. It’s a discount but with a touch of class. This should appeal to consumers, making FIVE one of the recession-proof stocks to buy.
Flowers Foods (FLO)
Arguably an easy idea for recession-proof stocks to buy, anyone concerned about an incoming downturn should target Flowers Foods (NYSE:FLO). No, it’s not the most exciting idea you could buy. And frankly, if we were living in any other market cycle, your money might be better spent somewhere else. As an example, FLO’s trailing five-year performance comes in at 45% up. Again, nothing riveting.
However, this stat helps confirm that the underlying company managed to stay resilient during these troubles. In the trailing year, FLO gained 5.3% while on a year-to-date basis, it returned nearly 4%. In contrast, the benchmark S&P 500 index is down a bit over 20% YTD. Under your typical assessment, the index treads water in bear market territory.
Fundamentally, what makes Flowers Foods attractive is its core business: producing and marketing packed bakery food. Cynically, the products are cheap and filling, just what you would want during a recession.
Alphabet (GOOG, GOOGL)
At first glance, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) does not seem like a candidate for recession-proof stocks to buy. Admittedly, the narrative doesn’t initially appear pleasant. Mostly, it’s the chart. Since the start of the year, the Class C GOOG shares dropped over 38% of equity value. For the curious, the Class A GOOGL shares fell almost to the same magnitude, just a bit worse.
Why, then, would anyone want to consider Alphabet as one of the recession-proof stocks to buy? Simply, the answer centers on its Google ecosystem. Obviously, a main hallmark of a recession is job losses. As we’ve seen throughout this year, layoffs mounted heavily, particularly in the (high-paying) technology space.
What will people do if they get the axe? In the modern age, they’ll turn to Google and search for new opportunities.
Stated differently, Alphabet basically represents the gatekeeper of the internet. You want to search for anything, you’re going to do it through Google. And that’s what makes it an effective market idea during a possible downturn.
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.