10 Recession Stocks to Watch 

If there’s one term that sends shivers through investors, it’s “recession.” This phenomenon is frequently depicted with sensational headlines of “market crashes” and “economic busts,” often accompanied by visuals of businesses closing down and widespread layoffs.  

Yet, ask any economist, and they’ll tell you that a recession is simply a natural phase within the economic cycle. After all, what goes up must eventually come down.  

Importantly, opportunities still abound during a recession – if you know where to look. Astute investors understand that while recessions entail serious repercussions, they can also serve as a chance to position oneself for future gains; this sentiment is encapsulated in the adage “bull markets make you rich, bear markets make you wealthy.” 

Recession stocks present a means for investors capture to capitalise on companies well-positioned to thrive amid a market recession.  

In this article, we’ll take a closer look at the correlation between recession and stocks, along with presenting 10 stocks worthy of consideration to fortify a resilient portfolio. 

What is a recession?  

A recession describes a sustained period of negative economic growth. Generally, when a country’s GDP shrinks for two or more consecutive quarters, it is said to be in recession.  

Besides poor economic growth, recessions are often accompanied by several other phenomena. These include mass layoffs, a decrease in available jobs, and an increase in unemployment. Governments may also increase relief measures, such as stimulus payments, unemployment benefits and interest rate reductions. 

Consumer spending tends to go down, as people cut back on discretionary spending and prioritise essential expenses. This causes corporate revenues to fall, and weaker companies may even fall into distress, prompting bankruptcy proceedings, takeover or closures.  

What happens to stocks during a recession? 

The turmoil of a recession is reflected in the stock market as a fall in share prices, which makes for all those frightening news reports filled with angry red charts and headlines about unimaginable amounts of money “wiped off” the market.  

Case in point: During the COVID-19 recession, the S&P 500, which had just made a new high on 20 Feb 2020, suddenly fell by nearly 34% over a nail-biting one month, finally reversing course on 23 Mar. 

Understandably, this unexpected, dramatic drop (indicated by the yellow arrow in the screenshot below) caused widespread panic among investors, even though the S&P 500 would eventually resume its upwards march and since gone on to set new highs. 

The takeaway here is that no matter how severe a recession may be, it will eventually abate, allowing the market to resume its upwards trajectory.  

Hence, there’s no need to dread recessions; instead, investors can and should, reposition themselves to better capture potential opportunities.  

What are recession stocks? 

Recall that during a recession, consumer spending decreases – but it does not cease completely.  

This makes sense if you think about it: when faced with reduced disposable income, you may cut down on your boba and coffee, but the necessity for three daily meals remains. Essential expenditures such as rent, utilities like gas and electricity, medical needs, healthcare, and transportation to work remain indispensable  

Also, you may curtail dining out and social outings, yet find yourself allocating more funds towards streaming, gaming and other at-home entertainment alternatives. Instead of a gym membership, you may decide to invest in home workout equipment. 

Hence, during a recession, consumers give precedence to essentials such as housing, food, healthcare, transport and utilities. This means that there are certain sectors that are inherently more resilient to recessions, affording investors a degree of security ^[1]. 

Within these sectors lie what we refer to as “recession stocks.” These stocks should also possess financial robustness and significant profitability – attributes crucial for their endurance during challenging periods. 

Recession stocks tend to have the following characteristics: 

• Possess wide economic moats that render them resilient to recessions 
• Well-poised to benefit from recessionary conditions due to the products and services they provide 
• Strong pricing power and brand recognition to counter slowing demand 
• Low debt and/or high cash reserves to reduce interest rate risk 

Keeping that in perspective, let’s take a look at a few potential contenders for your recession stock portfolio.  

10 recession stocks to consider  

GSK (NYSE:GSK) 

Sector: Healthcare 

British pharmaceutical giant GSK is a global leader in healthcare and vaccines in terms of total sales. It has established a dense economic moat of patent-protected drugs and products, and enjoys economies of scale – all supported by a powerful distribution network.  

For Q2 2023, the company reported good results, with an 11% increase in total sales, 20% rise in its shingles vaccine, and double-digit growth in its HIV (12%) and respiratory drug (30%) franchises among the highlights ^[2]. 

Anheuser-Busch InBev (NYSE:BUD) 

Sector: Consumer Staples  

Anheuser-Busch is the world’s largest beer brewery, and owns well-known brands such as Beck’s Budweiser, Corona and Hoegaarden.  

The company’s main competitive advantage comes from its ability to command a significant cost advantage over its competitors; this, in turn, creates credible barriers to entry towards those seeking to encroach on its market share.  

Additionally, Anheuser-Busch also has a history of making shrewd acquisitions of budding brands with promising potential, then leveraging its production and distribution network to accelerate growth.  

Estee Lauder (NYSE:EL) 

Sector: Consumer Staples 

When consumers cut back on spending, they prefer to stick with tried-and-tested brands instead of rolling the dice on something new. That is one of the reasons why global makeup leader Estee Lauder is regarded as a solid recession stock by the likes of Morningstar.  

The analyst points to the company’s wide economic moat, composed of its collection of strong brands, entrenched relationships with retail partners, and cost advantages. Estee Lauder also made use of timely, sizable investments in marketing and innovations to tide over inflation and supply chain disruptions, ultimately helping it to maintain its leading position. 

Taiwan Semiconductor Manufacturing (NYSE:TSM) 

Sector: Semiconductors 

The largest and most advanced producer of semiconductors in the world, Taiwan Semiconductor Manufacturing (TSMC) has established a unique economic moat that is virtually impenetrable. 

What makes TSMC a good candidate for a recession stock is that the company’s dominant position is slated to continue, given the burgeoning demand for A.I. – a core driver for the type of chips that only TSMC is capable of manufacturing at scale.  

However, do note the current downward pressure on price due to a combination of elevated inventories and weakened demand for chip-based products.  

McDonald’s (NYSE:MCD) 

Sector: Consumer Staples 

Due to its franchise-driven business model, McDonald’s is virtually shielded from several business risks that escalate during a recession, such as increased operating costs, elevated prices and lowered revenue.  

The company can simply sit out a recession while continuing to collect franchise rents and sales royalties. As a de facto landlord, McDonald’s real estate portfolio acts as a further hedge to inflationary pressures. 

As for its economic moat, McDonald’s is a battle-tested brand and it is almost unthinkable to conceive of a world without the Golden Arches in it.  

PepsiCo (NASDAQ:PEP) 

Sector: Consumer Staples 

From its origins as a soft drink manufacturer, PepsiCo has today grown to become a leading F&B supplier. Besides its namesake cola drink, the company also owns over 20 iconic mass market brands including Lay’s, Doritos, Quaker, Gatorade and Mountain Dew. 

Being the owner of so many household names, PepsiCo is well-positioned to weather recessionary pressures, as it is able to continue capturing consumer attention across its many popular product lines.  

Furthermore, its strong brand recognition enables the company to resist inflationary price pressures and continue enjoying bargaining power for shelf space with retailers.  

Kimberly-Clark (NYSE:KMB) 

Sector: Household Products  

Household products are another sector that is naturally resilient against recessions. This is because people will not stop cleaning and taking care of their homes no matter what the economic climate looks like. 

Kimberly-Clark shines as a recession stock due to its ownership of five of the top household paper goods brands – Kleenex, Huggies, Cottonelle, Scott and Kotex. The company’s strategy of diversifying its offerings across different pricing tiers helps it to maintain a competitive edge even when consumers feeling the pinch turn to value-oriented offerings.  

Johnson & Johnson (NYSE:JNJ) 

Sector: Healthcare 

One of the longest-running companies in the world, Johnson & Johnson has risen to a leading position in the global pharmaceutical and medical technology sectors.  

Between its twin business arms, the company provides medications and treatments for a wide variety of patients, including cancer, arthritis, diabetes, mood disorders, vision ailments and other conditions.  

Johnson & Johnson avoids the boom-and-bust cycle associated with drug patent life cycles by maintaining a good spread of different drugs and treatments. It enjoys further stability on account of continued demand for several medical procedures of which it is a leading innovator.  

Colgate (NYSE:CL) 

Sector: Consumer Staples 

Colgate is a worldwide supplier of household products with a level of brand recognition that few companies can match. This is one of the main reasons why the company is naturally resilient to recessions, as it is unlikely for anyone to give up on personal care, dental care, home care or feeding their pets during a pandemic – four of Colgate’s main business divisions.  

Further cementing its dominant position, Colgate has a strategic mix of value and premium brands to capture a wider segment of the market. It also offers its products in several sizes, further catering to different budgets and needs. 

Wal-Mart (NYSE:WMT) 

Sector: Consumer Staples 

Walmart Inc. is the largest discount store retailer in the United States.  

Companies that deal in budget-oriented offerings are positioned to outperform during a recession. As consumers become more price conscious, they naturally gravitate toward retailers like Walmart in a bid to stretch their dollar further.  

Adding to Walmart’s advantage is its resilience in the face of various economic circumstances throughout its long and storied history. This resilience stands as evidence of the company’s robust fundamentals and sound business strategies. It’s no coincidence that the retailer has maintained its top position in Fortune’s Global 500 for an uninterrupted span of 10 years ^[3]. 

Conclusion 

Although a recession typically accompanies a market crash, it’s important to note that not all opportunities vanish during a downturn. 

As exemplified by these 10 reputable stocks, numerous potential market prospects continue to exist. 

Beyond these selections, there is a plethora of stocks available in the market that could equally merit inclusion in your recession stock portfolio.  

In fact, a recession could present an opportune moment to acquaint yourself with valuable stocks that you might not have previously considered. 

References