Preparing for a recession at this juncture seems a ridiculous concept at this juncture. As CNBC pointed out late last week, the Federal Reserve’s key inflation measure showed that prices increased by just 0.3% in May, favorably below expectations. Put another way, disinflation is occurring which means that recession-proof stocks are only for worrywarts, right?
Well, maybe not. While the inflation data is encouraging, it’s also worth pointing out that the U.S. Supreme Court struck down President Biden’s plan to forgive student debt. That will likely weigh on discretionary retail sectors as affected individuals face a harsh reality check. Thus, it’s still a good idea to at least consider safe stocks in a recession.
Also, credit card debt hit a record high, implying that the Covid-19 pandemic failed to teach financial prudence. Should circumstances go awry, many if not most households lack the wherewithal to navigate effectively. Therefore, the below recession stocks to buy remain relevant despite the latest headline numbers.
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Fundamentally, the case for Waste Management (NYSE:WM) as one of the recession-proof stocks to buy practically sells itself. As the leading provider of waste and environmental services in North America, the company commands a serious moat. You can’t just ask for land for the purpose of making a landfill. Therefore, Waste Management enjoys an entrenched natural monopoly.
On the financial side, about the only major source of hesitation toward WM as a vehicle for investing during a recession is the valuation prospect. Trading at a forward multiple of 28.64, acquiring WM commands a hefty premium since the underlying sector’s median forward price-earnings ratio is only 19.23 times.
Nevertheless, what I appreciate about WM is its strong three-year revenue growth rate (per-share basis) of 9.5%. This stat beats out 60.71% of its peers. Unsurprisingly, the company benefits from consistent profitability. As a result, it’s one of the safe stocks in recession because everybody generates trash, downturn or not.
Recession-Proof Stocks: Colgate-Palmolive (CL)
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Another almost self-explanatory case for recession-proof stocks to buy, Colgate-Palmolive (NYSE:CL) is a major player in the personal care segment. Fundamentally, what I appreciate about Colgate is its namesake products for toothcare. Irrespective of whether a recession materializes or not, people will brush their teeth. It’s also one of the easiest processes involved regarding preventative care.
Regarding the financial aspect, Colgate again suffers a similar dilemma to Waste Management. Basically, as one of the more obvious ideas for recession stocks to buy, several folks have already piled into CL. Right now, shares trade at a forward multiple of 24.62. In contrast, the underlying sector median stat is 16.63 times. Thus, we’re talking about a sizeable premium.
On the other hand, Colgate also benefits from consistent profitability, making it an appropriate idea if you’re preparing for a recession. Put another way, business predictability should command its own premium during a down cycle.
Recession-Proof Stocks: Kroger (KR)
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Again, Kroger (NYSE:KR) presents an intuitive canvas for recession-proof stocks to buy. As a major player in the supermarket segment, Kroger stands to benefit from the trade-down effect. This concept involves consumers trading down their common purchases for cheaper alternatives (rather than going cold turkey). By logical deduction, Kroger represents a trade-down for consumers who previously went out to restaurants or ordered food deliveries.
Financially, Kroger presents a very intriguing argument for investing during a recession. Sure, the company only features a trailing-year net margin of 1.71%, which is slightly worse than the sector median of 1.82%. At the same time, Kroger carries a three-year revenue growth rate of 10.3%, outpacing nearly 70% of sector rivals.
Most enticingly, the market prices KR at a forward multiple of 10.44. As a discount to projected earnings, Kroger ranks better than 83.08% of enterprises in the defensive retail space. Also, it trades at 0.23 times trailing sales, favorably below 69.9% of its peers. Thus, it’s one of the safe stocks in recession.
Five Below (FIVE)
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While I’m a big fan of discount dollar stores as a frontline strategy for recession-proof stocks, they can also be problematic. Let’s face reality: dollar stores tend to be grimy affairs that might not attract customers during non-recession years. Fortunately, Five Below (NASDAQ:FIVE) fills a nice niche in the discount retail space.
Offering products priced mostly at five bucks but also select products that run to $25, Five Below delivers a bargain and a touch of class. Therefore, it should be relevant irrespective of whatever’s happening with the economy.
On a financial basis, Five Below benefits from a strong three-year revenue growth rate of 18.8%, above 80.44% of its peers. Also, its EBITDA growth rate clocks in at 18.6% during the same period. Additionally, concerned investors will likely appreciate Five Below’s consistent profitability. To be fair, FIVE carries a rich premium to both earnings and sales. Still, if circumstances go awry, Five Below will likely swing much higher from here.
Sempra Energy (SRE)
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Speaking of natural monopolies, Sempra Energy (NYSE:SRE) commands one of the most lucrative. First, Sempra of course represents a major player in the public utility space. No matter what happens with the market or the economy, you must still pay your bills. And not that I know from personal experience but these folks hunt you down if you forget to pay.
Second, Sempra serves large portions of the Southern California market, which isn’t surprising given its San Diego headquarters. As you know, California – despite its criticisms – is the economic engine of this nation. By logical deduction, Sempra serves the residents of this economic engine. Stated differently, it’s going to get its bills paid, downturn or no downturn.
Therefore, SRE easily ranks among the recession-proof stocks to buy. In all fairness, Sempra’s financials leave much to be desired on paper. However, the biggest takeaway is that it’s consistently profitable, which isn’t a shocker. Thus, put shares on your radar if you’re investing during a recession.
Archer Daniels Midland (ADM)
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A food processing and commodities trading company, Archer Daniels Midland (NYSE:ADM) offers a complete portfolio of ingredients and solutions to meet any taste and a commitment to sustainability, according to its corporate profile. As with the other recession-proof stocks to buy, the case for ADM truly sells itself. If you want to know, it’s that humans obviously have to eat.
What’s really interesting about ADM centers on its value proposition. A cursory glance at its business model will reveal that ADM presents an obvious case for safe stocks in recession. You’d think people would be all over Archer Daniels. Instead, the market prices shares at a forward multiple of only 11.34. As a discount to projected earnings, the company ranks better than 76.52% of its peers.
In addition, Archer features a three-year revenue growth rate of 16.4%, beating out 76.67% of entities in the consumer packaged goods space. Also, its EBITDA growth rate during the same frame clocks in at an impressive 30.8%. Thus, it’s one of the recession stocks to buy.
Essential Utilities (WTRG)
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Based in Pennsylvania, Essential Utilities (NYSE:WTRG) is one of the largest publicly traded water, wastewater, and natural gas providers in the U.S. Per its public profile, it serves approximately 5 million people across 10 states under the Aqua and Peoples brands. Essential is committed to excellence in proactive infrastructure investment, regulatory expertise, operational efficiency, and environmental stewardship.
Despite what should be a clear case for recession-proof stocks to buy, Essential suffered badly so far this year. Since the January opener, WTRG slipped more than 17%. Even with that magnitude of red ink, shares appear overvalued against both trailing and forward earnings.
Still, Essential carries one of the most important attributes when it comes to investing during a recession: consistent profitability. Also, it packs a stout top line with a three-year revenue growth rate of 28.3%, beating out 91.87% of its peers. On a final note, analysts peg WTRG as a moderate buy with a price target of $50.50. That implies almost 27% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
