A volatile stock market can test even the most patient investor. Watching portfolio values decline sharply is never easy. However, making impulsive moves can often do more harm than good. The wiser approach is to focus on high-quality, recession-resistant stocks that can provide growth and income until conditions improve.
This article profiles 10 companies with durable competitive advantages, consistent demand, and promising upside potential. While not completely immune to market swings, these stocks can help your portfolio weather brief recessions and multi-year bear markets.
Table of Contents
- General Mills
- Cardinal Health
- Deere & Co.
- Abbott Laboratories
Patience pays substantial dividends for long-term investors. Trying to time market bottoms is futile. Selling solid companies just because their share prices have temporarily fallen often locks in losses and forfeits future gains.
A better strategy is holding shares of high-quality businesses with steady revenues and dividends. The companies below check all those boxes. Their products and services enjoy consistent consumer demand regardless of economic conditions. While share prices may dip in recessions, they reliably rebound in due time.
Owning shares of these resilient enterprises can help investors weather bear markets with minimal stress. The key is taking a long view and not overreacting to short-term price fluctuations.
This article profiles 10 stocks poised to outperform during the next recession. All offer compelling risk-adjusted returns at today’s valuations.
Walmart: The Retail Giant Adapting to E-Commerce
With over 10,000 stores worldwide, Walmart (NYSE:WMT) is the world’s largest retailer. The company boasts 150 million weekly customers just in the U.S. Its massive size confers unmatched scale advantages in purchasing, distribution, and logistics.
Walmart has aggressively embraced e-commerce to complement its brick-and-mortar dominance. Walmart.com attracts 100 million unique visitors monthly. Options like curbside pickup and same-day delivery provide convenience to online shoppers.
The recently launched Walmart+ membership program also directly competes with Amazon Prime. For $12.95 per month, members get free shipping on orders and discounted fuel prices.
At 26x forward earnings, WMT shares trade at a premium to the S&P 500’s 18x multiple. However, Walmart deserves this valuation premium based on its superior business model, loyal customer base, and e-commerce initiatives. Analysts forecast 11.5% upside over the next 12 months.
Walmart’s operations generate tremendous free cash flow, funding an uninterrupted 49-year streak of dividend growth. The stock’s 2%+ yield should continue rising in the years ahead.
McDonald’s: The Global Fast Food Leader
McDonald’s (NYSE:MCD) operates over 40,000 restaurants in 100 countries. It essentially pioneered the fast food industry and remains the category leader. MCD collects rent and royalties from nearly all locations it doesn’t directly own, creating a uniquely asset-light business model.
McDonald’s was early to integrate technology like self-order kiosks and mobile apps into its customer experience. Drive-thrus already accounted for approximately 70% of sales before the pandemic. MCD’s convenience and value orientation perfectly align with consumer needs in tougher economic times.
Trading at 26x earnings, MCD shares still provide 13% upside according to analysts’ average price target. The company has raised its dividend annually for 46 straight years, a feat only a handful of other stocks can match. Income investors can lock in a secure 2% yield today that will steadily grow in the years ahead.
General Mills: Recession-Resistant Brands
General Mills (NYSE:GIS) produces a diversified portfolio of food products including snack bars, yogurt, cereal, ice cream, baking mixes, and frozen meals. Its consumer staples focus makes it a classic defensive recession play.
Many GIS brands like Cheerios, Betty Crocker, Yoplait, and Häagen-Dazs enjoy leading category market share and benefit from high customer loyalty. General Mills’ recent acquisition of premium pet food manufacturer Blue Buffalo also reduces its reliance on slower-growth categories.
GIS stock has modestly outperformed the S&P 500 over the past year and offers nearly 20% upside according to analysts. Management expects to deliver 7–8% annual earnings growth moving forward. The stock pays a well-covered 3.5% dividend yield.
PepsiCo: A Snack and Beverage Giant
Consumer staples icon PepsiCo (NASDAQ:PEP) owns popular chip brands like Lays, Ruffles, and Doritos plus a strong stable of carbonated soft drink products. The company wisely retained ownership of its bottling and distribution operations, unlike primary rival Coca-Cola (NYSE:KO).
PepsiCo’s Frito Lay division accounts for over 50% of total revenues and outgrew the wider snack category in 18 of the past 20 years. PEP stock has dramatically outperformed KO stock over the past decade thanks to its superior growth outlook.
Shares currently trade approximately 7.5% below analyst consensus price targets. PEP offers a secure 2.9% dividend yield that has grown annually for 50 consecutive years, an elite Dividend Kings distinction. Income investors can count on many more years of payout hikes ahead.
Cardinal Health: A Key Healthcare Products Distributor
Cardinal Health (NYSE:CAH) provides pharmaceuticals and medical products to over 75% of U.S. hospitals. As one of the largest distributors in the healthcare industry, the company benefits from immense scale and distribution efficiencies.
Demand for healthcare goods and services historically rises during recessions as patients defer less essential treatments. While opioid litigation creates some headline risk, Cardinal Health’s diverse product mix and entrenched customer relationships provide downside support.
CAH stock trades at just 11x forward earnings compared to its five-year average closer to 15x. Shares offer nearly 10% upside to analyst consensus targets. Management is guiding for mid-single-digit EPS growth this year. Cardinal Health has increased its dividend for 36 straight years, a remarkable streak for a stock with a 3.1% yield.
Deere & Company: Essential Farm Equipment
Deere & Company (NYSE:DE) is the world’s largest producer of agricultural machinery. The company manufactures tractors, combines, planters, sprayers, hay tools, tillage equipment, and more.
Farmers must continue replacing old equipment and investing in modern precision farming technologies to feed the planet’s growing population. Deere maintains an industry-leading 50% U.S. market share and strong brand equity with customers.
DE stock has fallen over 20% year-to-date on concerns that slowing economic growth will reduce demand. However, analysts see over 35% upside for shares driven by the company’s operating momentum. Deere has paid dividends for over 100 years since going public and has raised its payout annually since 2004.
Exelon: The Largest U.S. Utility Company
Exelon (NASDAQ:EXC) is America’s biggest utility company by revenue, serving over 10 million customers. Demand for electricity and natural gas is among the most stable and predictable across all industries. Utility stocks like EXC are classic defensive recession plays.
Exelon owns generation assets with fuel diversity across nuclear, hydro, wind, solar, and natural gas. Its size provides advantages in financing large capital projects. The company expects rate base investments to drive 6–8% annual earnings growth over the next four years.
EXC stock has significantly lagged utilities peer over the past decade but appears undervalued at just 18x forward earnings. Shares offer nearly 15% upside potential according to analysts. Management has grown the dividend 10% annually since 2012, and double-digit payout hikes should continue.
Lowe’s: Essential Home Improvement Products
Lowe’s (NYSE:LOW) operates nearly 2,000 home improvement stores across North America. The company trails only Home Depot (NYSE:HD) in its industry. Lowe’s and HD together control a dominant 30% market share in the fragmented home improvement retail space.
During housing downturns, customers complete more do-it-yourself repairs rather than hiring contractors. Lowe’s has also built a strong presence in the professional contractor customer segment. The company’s scale provides significant cost advantages relative to smaller independent hardware stores.
LOW shares appear attractively priced at just 17x forward earnings compared to a five-year average closer to 23x. Analysts forecast over 25% upside driven by steady sales growth and margin expansion initiatives. The stock’s 2%+ dividend yield is very secure with a low 40% payout ratio.
Abbott Laboratories: Leading Healthcare Products
Abbott Laboratories (NYSE:ABT) holds leadership positions across pharmaceuticals, diagnostics, medical devices, and nutritional products. Its diversified healthcare exposure provides stability across business cycles. Abbott owns several blockbuster brands like Similac infant formula and the FreeStyle continuous glucose monitor.
Despite its quality profile, ABT stock trades at a discounted 15x forward earnings, nearly 30% below its 5-year average valuation. Analysts forecast over 20% upside driven by new product launches across business segments.
Abbott has paid rising dividends for 50 consecutive years and joins the elite Dividend Kings club. Its 1.8% yield remains attractive for income investors. Expect many more years of steady dividend growth ahead.
Raytheon Technologies: Major Defense Contractor
Raytheon Technologies (NYSE:RTX) is an aerospace and defense giant formed via the 2020 merger of Raytheon Company and United Technologies. It specializes in avionics, cybersecurity systems, guided missiles, and intelligence services.
U.S. military spending rises during international conflicts and periods of global uncertainty. RTX generates nearly 80% of sales from the government and should see revenues continue growing over the next several years.
Raytheon shares look attractively priced for value and income investors at just 17x forward earnings and a 2.3% dividend yield. The company has a flawless track record of annual dividend increases dating back two decades. Analysts forecast over 20% upside for RTX stock over the coming year.
Key Takeaways: Focus on Quality and Income
Timing bear markets is virtually impossible even for professional investors. Rather than obsessing over short-term portfolio fluctuations, investors should focus on the long-term growth potential of high-quality businesses.
The companies profiled above share several common recession-resistant traits like steady demand, wide moats, excellent finances, and substantial dividend payouts. While their stock prices may experience volatility, their underlying business operations should continue humming along.
Owning shares of these defensive stocks helps mitigate macroeconomic risks beyond any individual investor’s control. Their dividends provide stable income that often grows steadily regardless of wider market conditions.
Staying invested in these resilient enterprises enables compounding gains over the long run. Trying to time market swings is often a fool’s errand. As investing legend Peter Lynch stated, “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”
Patience and an income focus are the perfect remedies for weathering periods of market turbulence. The 10 stocks above let investors do just that while positioned for long-term outperformance.
Frequently Asked Questions
What are some characteristics of recession-resistant stocks?
Some key traits that make stocks more recession-resistant include:
- Offering products/services with steady demand
- Strong brand reputation and customer loyalty
- Wide economic moats and competitive advantages
- High returns on capital and healthy balance sheets
- Reasonable valuations and attractive dividends
How can dividend stocks help during recessions?
Dividend stocks provide stable passive income that continues even during market downturns. The dividend payout helps cushion against share price declines. Many dividend aristocrats actually increase their payouts each year regardless of economic conditions.
What sectors tend to hold up best in recessions?
Defensive and non-cyclical sectors like healthcare, utilities, and consumer staples tend to outperform during recessions. Their revenues remain more stable as customers continue buying medications, electricity, groceries, and other necessities.
Should I sell my stocks during a bear market?
Selling quality stocks merely because of a bear market often locks in losses and risks missing out on the eventual recovery. It’s better to hold shares of companies you have confidence in over the long run. Add to positions at lower prices.
How can I protect my portfolio during recessions?
Focus on companies with durable competitive advantages, consistent demand, wide moats, healthy balance sheets, experienced management, and attractive dividend yields. Choose quality stocks with a margin of safety built into their valuations. Maintain proper diversification across defensive sectors.