10 Recession-Proof Stocks to Ride Out the Bear Market

HomeWAR10 Recession-Proof Stocks to Ride Out the Bear Market

September 26, 2023

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The stock market is facing a bear market in 2022 amid concerns over inflation, rising interest rates, and an economic slowdown. While downturns are never fun for investors, some stocks can offer stability even in a recession. This article will explore 10 recession-resistant stocks to consider buying now so you can wait out the current volatility.

Introduction

After years of strong returns, 2022 has been a rocky year for stocks. High inflation, rising interest rates, and recession fears have sent the S&P 500 down over 20% from its peak. While the bear market has been painful, it’s also created some attractive bargains for long-term investors.

In turbulent times like these, defensive stocks that provide steady returns can offer safe harbor. Some companies generate reliable earnings even during economic contractions thanks to the essential nature of their products and services.

This article will explore 10 recession-resistant stocks perfect for riding out bear markets and volatility. These companies have strong fundamentals and histories of performing well through past downturns. Adding shares of these defensive names can help fortify your portfolio for whatever lies ahead.

What Makes a Stock Recession-Proof?

Certain qualities make some stocks better suited to withstand recessions. Here are some key factors that make a stock defensive:

Essential products or services: Companies providing necessities like food, medicine, and utilities tend to hold up better during contractions.

Strong balance sheet: Firms with plenty of cash and low debt can more easily ride out downturns.

Pricing power: The ability to raise prices helps offset slowing demand during recessions.

Dividends: Paying steady dividends provides stable income and reassurance.

Diversified revenue streams: Multiple business segments smooth out exposure to any one weak area.

With these qualities in mind, let’s explore 10 of the best recession-proof stocks to buy for safety and income during the current bear market.

10 Recession-Proof Stocks

Walmart

Walmart (NYSE: WMT) operates over 10,500 retail stores globally. The company’s immense scale, discount prices, and focus on value make it a go-to shopping destination even during tight economic times. Walmart’s low-cost structure also helps it maintain profitability.

Walmart has increased its dividend for 49 straight years, making it a Dividend Aristocrat. The stock offers a solid 2.2% yield and trades at a reasonable forward P/E of just 25.

McDonald’s

McDonald’s (NYSE: MCD) has survived its share of recessions and thrived. Drive-thrus stayed busy even during 2020’s lockdowns. Menu innovations and deals give strapped consumers affordable options, while the iconic brand remains a trusted choice.

McDonald’s dividend has grown annually for 46 consecutive years. MCD stock yields 2.1% and has a forward P/E of 27. Analysts see its EPS growing 7% this year.

General Mills

General Mills (NYSE: GIS) produces shelf-stable packaged foods under brands like Cheerios, Betty Crocker, Yoplait, and Häagen-Dazs. These household names provide easy meals and snacks people rely on in all economies.

GIS shares trade at just 16 times forward earnings. The company has raised its dividend annually for over 20 years and now offers a tasty 3% yield.

PepsiCo

PepsiCo’s (NASDAQ: PEP) diversified snacking and beverage portfolio includes 23 mega-brands each generating over $1 billion in sales like Lay’s, Gatorade, Pepsi, and Quaker Oats. This broad lineup drives consistent revenues regardless of conditions.

PepsiCo is a blue-chip Dividend Aristocrat yielding 2.6%. The stock changes hands at a reasonable P/E of 26. EPS is forecast to climb over 7% in 2022.

Cardinal Health

Cardinal Health (NYSE: CAH) distributes pharmaceuticals and medical equipment plus provides logistics services to hospitals and pharmacies. Demographic trends will continue driving healthcare demand higher over time.

Cardinal Health has raised its dividend 36 straight years. CAH shares trade at just 9 times earnings and pay a dividend yield of 3.4%. The company repurchases lots of stock as well.

Deere & Company

Deere & Company (NYSE: DE) manufactures heavy-duty agricultural and construction equipment. Farmers must continue replacing worn-out machinery. Additionally, Deere’s parts and services business generates steady income.

DE shares appear discounted at 15 times earnings. The stock pays a 1.2% dividend yield on its low payout ratio. Deere has lifted its dividend for 29 consecutive years.

Exelon

Electric utility Exelon (NASDAQ: EXC) delivers power to over 10 million customers. People still need electricity regardless of economic conditions. Exelon’s generation mix also includes carbon-free nuclear power plants.

EXC stock provides a 3.1% dividend yield. Shares trade at economical valuations of just 17 times earnings and 9 times cash flow. The company has increased its dividend for 18 straight years.

Lowe’s

Home improvement giant Lowe’s (NYSE: LOW) houses over 1,700 stores across North America. Lowe’s has historically performed better than the broader market during past recessions as people spend more on home projects.

LOW shares look like a bargain at 15 times earnings. Lowe’s trades 21% under its 5-year average forward P/E. The stock pays a 2.4% dividend yield.

Abbott Laboratories

Abbott Laboratories (NYSE: ABT) sells medical devices, diagnostics, branded generics, and nutritional products. Healthcare stocks shine during recessions thanks to consistent demand. Abbott’s diverse medical portfolio offers stability.

Abbott is among the elite Dividend Kings having raised its payout for 50 consecutive years. ABT shares pay a dividend yield of 1.9% and trade at very reasonable valuations.

Raytheon Technologies

Defense contractor Raytheon Technologies (NYSE: RTX) seems poised for steady growth supported by rising global military budgets. Conflicts worldwide signal ongoing demand for Raytheon’s weapons systems.

RTX stock trades at just 16 times earnings and yields 2.5%. The company has paid dividends without interruption for nearly 100 years and hiked them annually for the past 29 years.

Key Takeaways

Defensive stocks can provide ballast against market storms thanks to steady sales of essential products and services.

Many recession-resistant stocks offer dividends yielding 2–3% or higher to deliver stable income.

Shares of most defensive names appear reasonably priced at current valuations below historical averages.

Dollar-cost averaging into defensive stocks allows long-term investors to take advantage of bear markets.

Building a diversified portfolio containing some resilient equities such as these 10 can smooth volatility during economic slowdowns.

FAQs

What stocks do well in a recession?

Defensive stocks with essential products, strong financials, pricing power, and dividends tend to perform best during recessions. Top defensive sectors include healthcare, utilities, consumer staples, discount retail, and basic materials.

How do I protect my portfolio in a recession?

Include some shares of recession-resistant stocks like the ones covered here. Maintain proper asset allocation aligning your holdings with your risk tolerance. Stay invested through volatility instead of panic selling. Limit use of leverage.

Should I buy stocks during a recession?

For long-term investors, bear markets present opportunities to buy high-quality stocks at discounted valuations. Average into defensive names over time instead of making one large purchase. Consider dollar-cost averaging to take the emotion out of investing during volatile markets.

Conclusion

Economic shakeups test investors’ nerves. However, incorporating defensive stocks can provide ballast to portfolios during market storms. Companies providing essential goods and services that people need regardless of economic conditions tend to fare better in recessions. Investors can ride out turbulence by holding shares of resilient, dividend-paying stocks like the 10 profiled here. Staying invested in quality companies allows long-term investors to capture gains when the inevitable recovery arrives.