3 Defensive Stocks to Buy Now and Hold Through the Next Recession

Chris MacDonald

Wed, Nov 22, 2023, 5:32 AM 4 min read

Recession-resistant stocks are crucial for maintaining stable, long-term portfolio returns. Economic cycles, marked by expansions and contractions, influence market performance. Diversifying across multiple assets is key to navigating emerging risks. Indeed, while specific sectors like consumer staples, healthcare, and utilities are considered recession-proof, success is not guaranteed by simply choosing companies within these sectors. However, some defensive stocks have proven their staying power during poor economic performance.

Holding top defensive stocks, typically characterized by a low beta and often blue-chip status with a strong dividend yield, is essential for capital preservation. When acquiring these defensive stocks aligns with favorable valuations, it can contribute to meaningful total returns.

Here are three recession-proof defensive stocks you should own now if a market downturn materializes.

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Restaurant Brands (QSR)

a group of people eating fast food, including cheeseburgers and fries

Source: Shutterstock

Restaurant Brands International (NYSE:QSR) thrives with a diverse brand portfolio, including Burger King, Popeyes, Firehouse Subs, and Tim Hortons. Despite Q3 revenue slightly below expectations, strong same-store sales growth and a multi-year rebranding effort indicate long-term growth potential.

While U.S. consumers benefit from easing prices, the impact is not mirrored in fast-food establishments. Recent data from the U.S. Bureau of Labor Statistics reveals a 0.4% monthly and 5.4% yearly increase in menu prices, surpassing overall inflation and grocery prices. Consumer prices remained flat for the month, offering a positive signal after over two years of significant increases, with a 3.2% rise in the past 12 months. Food prices in retail and other establishments also experienced a 0.3% monthly and 2.1% yearly uptick in October.

In periods of previous crises, we’ve seen fast-food establishment revenues grow as consumers seek out dining options within their budget. Thus, if you believe we’re headed into a recession, buying a company that can grow through such periods seems right.

Berkshire Hathaway (BRK-B BRK-B)

Warren Buffet Stocks: a picture of warren buffett smiling.

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Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), Warren Buffett’s holding company, demonstrated its resilience in any economic landscape. Established in 1889, Berkshire Hathaway, headquartered in Omaha, NE, is a diverse holding company with over 90 subsidiaries spanning insurance, railroads, utilities, manufacturing services, retail, and home building. Its primary sectors include insurance, freight rail transportation, and utility and energy businesses. Notable entities within its Insurance group (26% of 3Q23 revenue) include GEICO, General Re, and Berkshire Hathaway Reinsurance Group.

In the latest update, Q3 operating profit surged 40% year-over-year, hitting a record $10.8 billion. With a diverse portfolio, the conglomerate marked a historic cash reserve of $157.2 billion, constituting 20% of its market cap.

This achievement was propelled by higher short rates, yielding over 5% on its cash position. Buffett capitalized on rising bond yields, acquiring short-term Treasury bills with a 5% or higher yield. The company also allocated $1.1 billion for share buybacks in the quarter, totaling $7 billion in the year’s first nine months. This makes BRK-B an excellent and strong stock to keep a hold on.

Chevron (CVX)

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Chevron (NYSE:CVX) shines in the oil and gas sector with a robust $18.23 billion levered free cash flow last year. Despite a tepid market reaction to its Hess (NYSE:HES) acquisition, Chevron’s strategy signals potential business expansion. However, Chevron faced a setback in late October as its third-quarter report, surpassing revenue expectations with a $1.08 billion margin, fell short on EPS by 64 cents compared to analysts’ forecasts.

CVX stock received its second upgrade this week, despite Wall Street adjusting CVX stock prices downward after its third-quarter earnings miss and the $53 billion Hess (HES) acquisition. Bernstein analyst Bob Brackett upgraded Chevron stock to outperform, citing an overdone reaction to its Q3 results.

Bank of America (NYSE:BAC) upgraded Chevron to a buy with a $200 price target, seeing the post-Hess merger stock decline as excessive. However, other analysts lowered their Chevron stock price targets this week.

Chevron stock remains relatively stable, and I expect this to be the case long-term, at least relative to the overall sector. We all need to consume oil products, whether we like it or not, in good times and bad. In the energy space, Chevron remains a top pick of mine (and Warren Buffett’s, for that matter).

On the date of publication, Chris MacDonald has a LONG position in QSR, BRK-B. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.