With the latest employment report showing rising unemployment, fears of a potential recession are growing. During economic downturns, certain types of stocks tend to perform better than others. Let’s explore what makes a stock recession-resistant and examine some top picks according to Validea’s guru-inspired models.
Characteristics of Recession-Resistant Stocks
Recession-resistant stocks typically share several key traits:
- Stable demand: Companies that provide essential goods or services tend to maintain sales even in tough times.
- Strong balance sheets: Low debt levels and ample cash reserves help weather economic storms.
- Consistent dividends: Stocks with reliable dividend payouts can provide income even when share prices dip.
- Defensive sectors: Industries like consumer staples, healthcare, and utilities often outperform during recessions.
- Value orientation: Stocks trading at reasonable valuations may have less downside risk.
With these factors in mind, let’s look at five stocks that score highly on Validea’s models and possess recession-resistant qualities.
Top 5 Recession-Resistant Stocks
1. Archer-Daniels-Midland Co (ADM)
Archer-Daniels-Midland is a global agricultural commodities processor and food ingredient provider. Its essential role in the food supply chain makes it relatively recession-resistant.
ADM scores well on multiple Validea models:
- Value Investor (86%): Passes Graham’s criteria for financial strength and reasonable valuation.
- P/E Growth Investor (91%): Lynch’s model favors ADM’s low PEG ratio and consistent earnings growth.
- Value Composite Investor (92%): O’Shaughnessy’s approach likes ADM’s combination of value metrics and quality.
Tractor Supply is a leading retailer of farm and ranch supplies, which can see steady demand even in economic downturns.
TSCO impresses on several Validea models:
- Patient Investor (93%): Buffett-inspired model approves of TSCO’s consistent earnings growth and high return on equity.
- Multi-Factor Investor (87%): Van Vliet’s strategy favors TSCO’s low volatility and strong momentum.
- P/B Growth Investor (77%): Mohanram’s approach likes TSCO’s profitability and consistency in returns.
3. Molson Coors Beverage Co (TAP)
Molson Coors, a major beer producer, benefits from the relatively stable demand for alcoholic beverages during recessions.
TAP scores highly on multiple Validea models:
- Value Composite Investor (100%): Perfectly meets O’Shaughnessy’s criteria for value and quality.
- P/E Growth Investor (93%): Lynch’s model favors TAP’s low PEG ratio and reasonable debt levels.
- Book/Market Investor (90%): Piotroski’s approach likes TAP’s improving financial strength indicators.
Universal Corporation, a global leaf tobacco supplier, tends to see consistent demand for its products even in economic downturns.
UVV impresses on several Validea models:
- P/E Growth Investor (91%): Lynch’s strategy approves of UVV’s low PEG ratio and high dividend yield.
- Value Investor (86%): Passes Graham’s criteria for financial strength and reasonable valuation.
- Shareholder Yield Investor (70%): Faber’s approach likes UVV’s focus on returning capital to shareholders.
5. National Beverage Corp. (FIZZ)
National Beverage, known for brands like LaCroix sparkling water, benefits from consumer loyalty to affordable indulgences during tough times.
FIZZ scores well on multiple Validea models:
- Patient Investor (99%): Nearly perfect score on Buffett-inspired criteria for consistent earnings and high return on equity.
- Momentum Investor (71%): Validea’s momentum strategy likes FIZZ’s recent earnings growth and price performance.
- P/B Growth Investor (66%): Mohanram’s approach approves of FIZZ’s profitability and consistency in returns.
While no stock is completely recession-proof, these companies demonstrate characteristics that may help them weather economic storms better than most. Their strong scores across multiple Validea models suggest they possess both value and quality attributes that could make them resilient investments in challenging times.
Further Research
