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Fears of a looming recession seem to be rising, partly fueled by President Donald Trump's macroeconomic policies. While it's impossible to predict whether an economic downturn is indeed coming, it's not a bad idea for investors to purchase shares of companies that are likely to perform relatively well in case it does happen.
Companies that have been paying -- and raising -- their dividends for a long time can be particularly good targets in these cases since any corporation capable of sustaining a dividend through good and bad times is likely to have strong fundamentals. Medtronic (NYSE: MDT) and Johnson & Johnson (NYSE: JNJ) are excellent examples along those lines. Here's what investors need to know.
Businesses that can thrive during downturns
During a recession, economic activity declines, the unemployment rate increases, and with people having less money to spend, consumer demand for various products and services decreases. However, some sectors experience recessions differently than others. Defensive ones, like healthcare, tend to perform better than most, since many medical products and services are a matter of life or death. So, these tend to be the last ones consumers want to skimp on during downturns. Medtronic and Johnson & Johnson provide some of these products and services.
Medtronic is one of the largest medical device companies in the world. Its portfolio spans four main therapeutic areas, including diabetes care, cardiovascular health, medical surgical, and neuroscience. To get even more specific, Medtronic develops and markets products that help treat aneurysms, strokes, and hernias, and provides insulin pumps to diabetes patients. These are among the last things people will want to avoid spending money on if they can help it.
Similarly, Johnson & Johnson has a vast portfolio of drugs across several therapeutic areas, including immunology, oncology, infectious diseases, and neuroscience. Among the company's top-selling products are Tremfya, which treats several conditions, including ulcerative colitis and Crohn's disease, and Darzalex, a therapy for multiple myeloma. Johnson & Johnson also has a robust medtech segment that helps diversify its business. Further, Johnson & Johnson and Medtronic have deep, entrenched footprints in the industry, whether with patients, physicians, or third-party payers.
Though their sales might dip somewhat in recessions, they should still perform relatively well.
Excellent long-term prospects
Medtronic and Johnson & Johnson have strong prospects due to their leadership in an industry that will continue to grow in the long run as the world's population ages. Beyond general trends, these two healthcare giants have made investments that should pay off down the road. Consider the robotic-assisted surgery market that Intuitive Surgical currently dominates. There is massive potential for growth in this field since, as Medtronic pointed out about two years ago, less than 5% of surgeries that can be performed robotically currently are.