During the financial crisis of 2007-2009, Walmart Inc. (WMT) was the one stock out of all 30 constituents in the Dow Jones Industrials Average index (.DJI) to post a positive return between the beginning and end of that bear market. During the COVID-19 sell-off of March 2020, Walmart also regained all its losses within a couple of weeks and hit a new all-time-high stock price in April 2020, during the height of the pandemic. Walmart's claim to be a leading recession-resistant stock is solid. It's hardly the only blue-chip company that can hold up during a downturn, though. These seven stocks all performed better than the broader market during the 2008 meltdown and the 2020 COVID-19 crash. Past performance is no guarantee of future results, but there's good reason to think these stocks have what it takes to keep a portfolio on track during the next recession.
Walmart is quite possibly the ultimate recession-proof business. That's because its stores are based around selling essential items, such as food and personal care products, at affordable prices. People may forgo luxury shopping for an extended period. But folks have to pick up bread, toothpaste, pet food and other necessities with regularity. And whether they're going to the store or shopping on Walmart's improving e-commerce site, they may end up buying some other discretionary goods as well. Not everyone may love shopping at Walmart, but few retailers offer more value for the money. Walmart stock has gotten hit over the past quarter as it has lowered its earnings outlook. Walmart shares arguably were aggressively valued before, but after the latest decline, they're now at about 20 times forward earnings.
Procter & Gamble Co.
With $80 billion in annual revenues, Procter & Gamble (PG) is one of the world's dominant consumer products companies. Leading brands include Tide, Pampers, Gillette, Head & Shoulders and Febreze, among many others. For a while, the company was struggling with organic growth. However, in the mid-2010s, the company refocused itself. It unloaded dozens of weaker brands while doubling down on its top products. This paid off in a big way once 2020 hit; P&G's focus on cleaning and hygiene products, in particular, delivered. Regardless of what is happening in the world or the economy, people still want to buy soap, diapers, razors, laundry detergent and other such everyday goods. With 66 consecutive years of dividend hikes, P&G is a stock investors can count on for rising income even in a recession.
McDonald's (MCD) was one of the best-performing stocks of major blue chips in the 2008 financial crisis, and it also bounced back quickly in 2020. The reasons are quite similar to that of Walmart. When the economy goes south, people care less about more intricate flavors or elaborate menu options. If the focus is on getting a tasty, filling meal at a low price, McDonald's scores high marks. As consumers economize, McDonald's benefits. There is another hidden driver that protects McDonald's uniquely during recessions. It owns a ton of its own real estate; in fact, some analysts have joked that McDonald's is a commercial real estate company that flips burgers on the side. Owning tons of quality real estate around the world protects McDonald's balance sheet and keeps costs down during hard times. Additionally, during inflationary periods, such as now, the value of McDonald's land holdings shoots up.
Home Depot Inc.
Home Depot (HD) stock has been tanking recently. This is on fears of a major downturn in the housing market as interest rates soar. However, Home Depot's performance is only modestly tied to the new-home market. For proof of that, look at 2008. For that year, the S&P 500 (.SPX) plummeted 37%. And the 2008 market turmoil was caused, in large part, by the collapse of the American housing and mortgage markets. Yet, Home Depot stock only dropped 12% in 2008. While people may not be buying new homes, they still repair and take care of their existing ones. And also, during down housing markets, a lot of people move due to foreclosure or to downsize, and these events tend to cause a flurry of home-maintenance activities. Additionally, some hobbies, such as gardening, can save people money and gain popularity during recessions. Long story short, a recession shouldn't crush Home Depot.
Pfizer (PFE) performed reasonably well in 2020 and surged to new highs in 2021. That intuitively makes sense, given that company's involvement in products related to COVID-19. But that wasn't just a boost from the vaccines. Pfizer also performed much better than the market during 2008. The pharmaceutical industry enjoys some recession-proof elements. People still need their life-saving drugs, regardless of what the economy is doing. And in cases where the government is negotiating pricing, a recession isn't likely to lower compensation to Pfizer, as politically driven purchases tend to operate on a different economic framework. Even after its recent run, PFE stock is still selling at less than 8 times estimated 2022 earnings and pays a greater than 3% dividend yield.
Johnson & Johnson
Johnson & Johnson (JNJ) finds itself at a midpoint between Pfizer and P&G. J&J's bread and butter is pharmaceutical drugs, which enjoy the same recession-resistant features as Pfizer. Meanwhile, Johnson & Johnson's consumer products division proved itself to be resilient in 2020 and other economic downturns. In addition to those two businesses, J&J has a sizable medical devices division. This combination of business lines tends to ensure that at least one part of J&J is outperforming at any time and can carry the rest of the company. With hospitals getting back to normal operations following COVID-19, this should be medical devices' time to shine. J&J is a great income name as well, as it has grown its dividend for 60 consecutive years.
Kraft Heinz Co.
Speaking of things people can't go without, food is right near the top of the list. Back in 2008, Kraft (KHC) was one of the better-performing Dow components during that brutal year. Kraft split up in 2012, spinning off its Mondelez International Inc. (MDLZ) confectionery and drinks business. That paved the way for the monumental merger with Heinz. While that merger has had its issues, Kraft Heinz proved its resilience during the COVID-19 bust. The stock regained its March 2020 losses by mid-April and has since moved significantly higher. In a good economy, Kraft Heinz's staple packaged foods may not be that appealing. But, like McDonald's, when times are tough, people trade down to Kraft Heinz's more affordable products. And, with inflation running rampant, Kraft Heinz's large size and well-known household brands should give it operational resiliency. In the meantime, shares yield more than 4%.
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