In this article, Jason Williams discusses defensive stocks and lists his top four stocks to resist a recession.
Welcome back to the week! I hope you had a great weekend and are ready for part two of my latest two-part series on investing for a recession…
Last Friday, I went over some of the industries that tend to outperform the markets during a recession.
And I covered specific companies in each of those industries that helped investors protect (and even grow) their profits during the Great Recession of 2008.
Today, I want to give you a head start preparing for the recession that’s all but guaranteed to hit the U.S. (and likely global) economy in the next few months…
So let’s get to it and see my four favorite recession-resistant investments for 2023.
The Best Offense Is a Good Defensive Stock
First off, let’s cover defensive stocks. And for those of you who’ve forgotten or missed my article last week, we’ll also explain what those are.
A defensive stock is simply a type of stock that tends to be less affected by changes in the economy.
Even more simply put, these stocks tend to hold up better during economic downturns, when other stocks may experience significant losses.
Defensive stocks are often associated with companies that provide essential goods and services.
These can include health care, utilities, and consumer staples (like food, beverages, and household products).
That’s why these types of companies are generally viewed as having relatively stable demand for their products or services regardless of the economic environment.
And right now, my top defensive stock is a healthcare conglomerate that is also a dividend aristocrat.
That means it’s raised its dividend payment every year for at least 25 in a row. And this one is more like royalty after hiking it for 61 straight years.
I’m talking about Johnson & Johnson (NYSE: JNJ). It’s a very stable company that’s been around since 1886.
And through its subsidiaries, it’s inextricably intertwined with the healthcare industry. It researches, develops, manufactures, and sells various products in the healthcare field worldwide.
From consumer skincare products to over-the-counter medicines to smoking cessation products to pharmaceuticals and prescription meds, J&J has a spoon in just about every healthcare pot.
And that makes it a company that’s likely to see its products stay in demand no matter what happens to the economy or how long it lasts.
That’s something it proved the last time the U.S. economy fell into a deep recession, too.
It outperformed markets on the way down (falling far less) and helped investors recover more quickly on the way back up:
And I’m confident that it will perform just as well — if not better — in the next recession heading our way.
Who Doesn’t Love a Sale!?
Next up on our list are discount retailers. I’m sure you know what I mean by that. We’re talking about companies that offer lower-priced products.
The usual suspects are Walmart (NYSE: WMT), Target (NYSE: TGT), Dollar Tree (NASDAQ: DLTR), and Dollar General (NYSE: DG). And those are all great options.
During a recession, people have to tighten up those budgets. And a lot of us do that by trading in the luxury items for discounted ones or dropping the brand names and buying generic.
All of those stores give shoppers that opportunity. But they’re not at the very top of my list for recession-resistant discounters.
That honor goes to Big Lots (NYSE: BIG). Like J&J, it’s also a dividend payer. And if you read my last series, you know how much I like those.
But there’s another reason I’m more bullish on Big Lots than its bigger big-box retailers, Walmart and Target…
It outperformed them and the market last time we went through a deep global recession… and by a whole lot, too:
I don’t know if it could churn out another 75% gain while markets plummet, but I’m positive it’ll keep up that tradition of outperformance. Join Wealth Daily today for FREE. We’ll keep you on top of all the hottest investment ideas before they hit Wall Street. Become a member today, and get our latest free report: “How to Make Your Fortune in Stocks”
It contains full details on why dividends are an amazing tool for growing your wealth.
Join Wealth Daily today for FREE. We’ll keep you on top of all the hottest investment ideas before they hit Wall Street. Become a member today, and get our latest free report: “How to Make Your Fortune in Stocks”
Money, Money, Money… MONEY!
You’d think that financial stocks would be some of the worst performers when people are tight on money.
But it’s that tightness that helps them outperform. The example I gave last week was Visa, a credit card company.
It beat the pants off the markets during the great financial crisis because consumers were running low on savings and were forced to resort to credit to pay the bills.
But there’s a new kid on the block when it comes to buying something now and paying for it later…
And it goes by the (incredibly uncreative) name of “buy now, pay later,” or BNPL.
BNPL is a type of payment option that allows consumers to purchase goods or services and pay for them in installments over time.
This means that instead of paying the full amount upfront, the consumer can spread out the cost of the purchase into smaller, more manageable payments.
This sounds a lot like “layaway” to us old folks born before the 2000s. And it’s similar. But the big difference is with layaway, you don’t get the product until you’re done with the payments.
BNPL is the other way around. And it became a huge hit over the past few years as the rise of digital payment platforms and online shopping hit scale.
Most of the companies facilitating it saw their share prices hit hard as the market swooned in 2022.
But that puts them in a great place to rally as more people turn to BNPL to pay for things they can’t afford… just like they did with Visa cards last time.
And my top BNPL stock right now is Affirm Holdings Inc. (AFRM). It’s one of the only pure-play bets on BNPL and it’s share price is incredibly low after sliding pretty much all of 2022.
But it’s not a one-trick pony, and I’m convinced it could come back in a big way during the coming recession.
The company’s platform includes point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer-focused app.
Its commerce platform, agreements with originating banks, and capital markets partners enable consumers to pay for a purchase over time with terms ranging from 1–60 months.
Plus, it’s got 235,000 merchants integrated on its platform covering small businesses, large enterprises, direct-to-consumer brands, brick-and-mortar stores, and companies with an omnichannel presence in just about every industry you can imagine.
It’s definitely the most speculative of my recession resistance stock picks, but that could lead to some of the biggest gains if I’m right.
Last but not least when it comes to recession resistance are select technology companies, which might seem a little strange after watching the “Tech Wreck” of 2022.
But companies that offer innovative technological solutions to everyday problems can also perform incredibly well during recessions.
You see, recessions can be a time of innovation and disruption as companies look for new ways to cut costs and stay competitive.
Technology companies that are at the forefront of new trends and disruptive technologies may be well-positioned to benefit from these changes.
Amazon (NASDAQ: AMZN) was the example I used last week. It had an incredible performance during the Great Recession and helped investors beat the market by a ton.
But it wasn’t the only one. Apple (NASDAQ: AAPL), Google’s parent company Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), and Salesforce (NYSE: CRM) all saw their revenues and share prices grow through the last major recession.
And those are all pretty solid bets for the coming recession too. But they’re not my top pick.
That spot goes to a relatively new company on the Street, Fiverr (NYSE: FVRR).
Fiverr is an online platform that connects freelancers with clients who need their services.
The platform provides a marketplace where freelancers can offer their skills and services in areas such as graphic design, writing and translation, digital marketing, video and animation, programming, and more.
And if a deep recession hits the U.S. economy, you can bet every company out there, from massive multinationals to small- and medium-sized businesses (SMBs), will be looking for ways to cut costs.
One way to do that is by laying off salaried employees and contracting out more work to freelancers and temporary workers.
And as the economy starts to pick back up, those freelancers also give companies more flexibility in case there’s a road bump on the way back up to profitability.
Wealth Daily’s Bottom Line
The bottom line here is that there are a lot of ways to not only protect your portfolio from losses during a recession, but also to grow your nest egg throughout the economic downturn.
These are four of my top stock picks for recession resistance, but there are many other choices you could make that will also likely outperform the broader market.
And my colleagues and I here at Wealth Daily and our sister publications, Energy and Capital and Outsider Club, will be here to help you identify them in plenty of time to profit.
All you need to do is make sure you’re keeping an eye out for our articles.
And if you haven’t already, make sure you sign up for a 100% FREE subscription to our e-letters so you’ll never miss a single profitable recommendation or market-beating strategy again.
To your wealth, Jason Williams After graduating Cum Laude in finance
and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private
sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team
responsible for billions of dollars in daily trading. Jason left Wall Street to found his own
investment office and now shares the strategies he used and the network he built with you. Jason
is the founder of Main Street
Ventures, a pre-IPO investment newsletter; the founder of
Future Giants, a nano cap investing service; the editor of Alpha Profit Machine, an
algorithmic trading service designed specifically for retail
investors; and authors The Wealth Advisory income stock
newsletter. He is also the managing editor of Wealth
Daily. To learn more about Jason, click here.
To your wealth,
After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter; the founder of Future Giants, a nano cap investing service; the editor of Alpha Profit Machine, an algorithmic trading service designed specifically for retail investors; and authors The Wealth Advisory income stock newsletter. He is also the managing editor of Wealth Daily. To learn more about Jason, click here.