Best recession stocks to invest in during economic uncertainty
There’s been a lot of talk about America facing a potential recession in 2023. This would be the first official recession since ‘the great recession’ which lasted from Dec. 2007 to June 2009. So, if there is economic uncertainty looming, what are the best recession stocks to invest in?
Best recession stocks
First, let’s look at the broader picture, the 35,000-foot view if you will.
Let’s start by identifying industries that do well in recessions or are ‘recession proof.’
According to CNBC, the four best recession proof industries are:
- Health care
- Government
- Computers and tech
- Education
Whether you agree with any of the above or not, it’s an interesting list. I did chuckle when I read the second industry mentioned: government.
But, more importantly, listing Tech third caught my eye. What’s fascinating about tech stocks, which have led much of the American economy since the early 2000’s, is that they tend to fall sharply before a recession, and then recover faster than other companies during the recession.
The explanation here is that during a recession the Fed starts to cut interest rates, helping tech stocks to outperform other industries.
That’s the same reason why we saw stocks like Tesla, Coinbase, Nvidia, etc. all have gut-wrenching declines in 2022, followed by decent recoveries through Feb. of 2023.
Tesla didn’t make our list here, but we still have them projected for a nice recovery by 2025.
Amazon ($AMZN)
So, why does Amazon rank No. 1 on our list of best recession stocks? I’m glad you asked.
As more people will prefer staying home and buying goods in bulk during hard economic times, where will they turn?
They’ll likely end up stocking up on goods at the world’s largest online retailer, Amazon. You may be thinking, well isn’t Amazon more likely to dip with other e-commerce stocks?
It’s a fair question. But we already saw Amazon ($AMZN) experience significant drawbacks in 2022, and it has yet to experience much recovery like other blue-chip tech stocks.
In fact, only Tesla (-68%) and Meta (-66%) experienced bigger declines in 2022. So, should you buy Amazon stock during a recession? Nothing is a sure-thing during a slow economy. However, if any tech giant is due for recovery, it’s Amazon.
In fact, Amazon has been investing in the health care space over the past few years, diversifying their potential revenue streams.
So besides, Amazon, where should investors look?
Chewy ($CHWY)
Ah, the Amazon of pet care, Chewy cracks the list of best recession stocks.
But why? According to analyst Anna Andreeva: “The pet space is defensive (historically outperforms during recessions) and demand is inelastic,” she wrote. “The headwinds from last year across the supply chain and wage/labor pressures are starting to dissipate, with sell-side estimates poised for upside, in our view.”
It’s worth noting that she made that claim in late June of 2022.
Since Anna’s Chewy stock prediction, the pet-care company has managed to form a decent base into 2023.
Now, what makes Chewy a good recession stock? Simply put, people could hold off on having children (which can be expensive) during economic hardships.
Instead, they could opt for furry friends in form of cats or dogs. Thus, driving essential pet-care supplies (food and toys) from Chewy, which offers speedy shipping like Amazon.
Home Depot ($HD)
You’ll quickly notice that there are no meme stocks mentioned on this list.
While stranger things have happened, we’d prefer to analyze companies that are more of ‘necessities’ and less of moon shots, meaning a stock that could randomly soar.
Now, for Home Depot, let’s look at the bullish case here.
I’ll draw from personal experience. I’m moving my family into a different apartment soon, and we need to patch up some dings, paint and get some new furniture.
While looking for furniture, I realized how costly stores like Restoration Hardware ($RH) are. Sure, I love the design of Restoration Hardware furniture, but not at that price.
Especially when we’re looking to expand our family in the near future. So, where does that leave me? A business I can accomplish all of the above needs at, Home Depot.
They’ve expanded their offerings into a nice online marketplace where they offer stylish furniture at near wholesale pricing. They also offer fast shipping now, which during the pandemic, was non existent for nice furniture.
So, if you’re like me, Home Depot seems like a ‘safe stock.’ Although a big disclaimer, no stock is truly safe in economic hardship.
Home Depot stock is currently trading around $298 per share and it has a dividend!
Kevin O’Leary’s Top 10 Dividend Stocks$HD $MSFT$SPGI$MRK$JNJ$MMC$AAPL$TROW$PFE$MCD
How many of these positions do you share with Mr. Wonderful? pic.twitter.com/uqLZ3CP2Ff
— Dividend Seeker 📈💰💵 (@Dividend_Dollar) March 6, 2023
Costco ($COST)
It wouldn’t be a recession stock list if we didn’t include a budget and bulk retailer like Costco, right?
Now, I have to be clear, I do not have a Costco membership, so I can’t give you an in-depth view of the services.
Although, I still believe it’s easy enough to make the case for why Costco will stand the test of time.
It’s simple. Consumers want to know they’re getting the best price for any product. At Costco, you’re basically guaranteed that, with membership ($120 annually; $10 per month).
From hot dogs to home goods like paper towels, cleaning products and more, Costco is a one-stop shop.
Now, you might be thinking how can I choose between Costco and Amazon for my stock portfolio. It’s a tough choice.
But Costco is more of the legacy option since they were founded in 1976 by James Sinegal and Jeffrey H. Brotman.
The drawback to Costco? Costco’s financials are looking a little suspect at the moment.
$COST Costco Q2 FY23 (ending Jan. 2023).
• Revenue +6% Y/Y to $55.3B ($0.3B miss).
• Non-GAAP EPS $3.30 ($0.1 beat).Comparable sales Y/Y:
• US +5.7%.
• Company +5.2%.
• E-commerce -9.6%.Second revenue miss back-to-back. pic.twitter.com/X28pvcaiZw
— App Economy Insights (@EconomyApp) March 2, 2023
One interesting note on Costco before we sign off, is that they’re planning to build 800 apartments on top of its south LA warehouse.
Costco is hoping to make around 200 of the units ‘low-income housing’ and I’m sure they rest will be glamourous penthouses.
So, what are your best recession stocks? Comment down below!
