The financial crisis of 2008-2009 wreaked havoc on the stock market. In 2008 alone, the S&P 500 index (.SPX) lost 38.5% of its value – the worst year since 1931 – in the depths of the Great Recession. But while the vast majority of equities plummeted in 2008, there were pockets of the market that showed remarkable resilience.
Looking back, seven outstanding recession-proof stocks managed to rally, even during Wall Street's darkest days. While there are no guarantees these same stocks will outperform in the next downturn, they should give investors an idea about the type of portfolio that rewards in times of economic crisis.
While consumers were reining in spending dramatically in 2008, the toy and entertainment company Hasbro (HAS) was, unexpectedly perhaps, thriving. Hasbro's revenue grew for a fourth consecutive year in 2008, with earnings growing for an eighth straight year, and its quarterly dividend increased by 25%. Driven in part by the strong performance of its licensed brand business, HAS stock thrived in a time of turmoil thanks to franchises like Star Wars, Iron Man, The Incredible Hulk and Spider-Man. Hasbro's own Transformers franchise also performed quite well, showing once again that entertainment is frequently a reprieve for people during economic downturns.
Discount clothing retailer Ross Stores (ROST) saw its shares rally in 2008 as consumers increasingly exercised cost-consciousness in their shopping habits. "Our merchandise assortments benefited from the huge amount of close-out opportunities in the marketplace," company officials said in the 2008 annual report, which reported both record sales and earnings that year. Ross Stores expanded rapidly during the Great Recession, with its store count rising from 890 to 956 in 2008. Combined with same-store sales growth and tighter inventory management, it's no wonder ROST beat the market by 56 percentage points, earning its title as one of the best recession-proof stocks.
Like Ross Stores, Walmart (WMT) was a clear beneficiary of the dramatically weakened economy during the Great Recession, as shoppers rushed to minimize expenses by shopping at discount retailers. Walmart's revenue grew 7.2% in the single worst year for the economy in generations, a testament to its endurance. The big-box retailer also managed to grow earnings per share and increase its dividend 8% in the same year. The fact that WMT paid a dividend (and was increasing it) at a time when many dividend stocks were slashing or ceasing payments altogether likely helped soothe investor concerns. Investing doesn’t have to be complicated, and Walmart’s endurance is a great example of that.
Biotech giant Amgen (AMGN) insulated itself from recession in a way quite different than previous companies on this list: It made vital cancer, anemia and other drugs that consumers couldn't go without. Product revenue grew just 3% in 2008, but that wasn't too shabby considering most Americans were in panic mode. Amgen also wisely decided to take advantage of the market crisis, buying back millions of shares below $56, roughly a quarter of its current price. That year also brought positive clinical trial results for denosumab, a drug that would account for $2.3 billion in revenue in 2018.
In summary, the recession-proof industries thus far have hailed from discount retail, entertainment and health care. Anheuser-Busch Inbev (BUD), it could be glibly argued, is a mix of all three, combining cheap beer with self-medication and the need to escape reality. Revenue grew 5% in 2008, which wasn't bad but wasn't anything to write home about either. The main catalyst driving the stock's tremendous outperformance during the bear market, however, was the acquisition of Anheuser-Busch at the hands of Inbev. Mergers and acquisitions typically reward shareholders with a premium, and this deal was no different.
Tax return prep giant H&R Block happens to boast a fairly recession-resistant business: After all, death and taxes are guaranteed in all economic environments. In 2008, when blue chips like General Electric Co. (GE) were preparing to slash or eliminate dividends, companies paying out rock-solid income streams to common shareholders were quite rare. HRB was one of them, however, offering a roughly 4% dividend yield. More than 12 years later, H&R Block (HRB) looks just as resilient, enjoying a 4.6% dividend, steady free cash flow and four straight years of dividend growth. A low beta around 0.2 is typical of an investment primed to outperform in the next recession.
Think a chain of variety stores in which every item costs $1 or less might resonate with cash-strapped consumers? Dollar Tree (DLTR) is such a store, and its decision to branch out from party favors and into basic household consumables like cleaning supplies and groceries looked brilliant in 2008. CEO Bob Sasser called it a "key to our relevance in both good times and bad," and he was right. Doubling the number of stores that accepted food stamps was also wise, helping DLTR outperform the market by nearly 100 percentage points that year.