Recession-Proof Stocks
Recession-proof stocks can offer stability during economic downturns
On the days of the worst market drawdowns, the real standouts who can sustain dramatic events show their faces. In other words, they either hold strong or don’t suffer as great of a drawdown on their valuation. This article will explore some of those stocks given the recent turmoil in the market.
Overview of Recession-Proof Stocks for Beginners
Recession-proof stocks are shares in companies that tend to perform well—or at least remain stable—during economic recessions. These are typically businesses that provide essential goods or services people need regardless of the economy’s health, such as food, healthcare, utilities, or basic consumer staples. For beginners, these stocks are appealing because they can reduce the risk of major losses when markets get shaky, offering a safer entry point into investing.
What Makes a Stock Recession-Proof?
A stock earns its "recession-proof" label due to the nature of the company behind it. Here’s what sets them apart:
Inelastic Demand: These companies sell products or services that people can’t easily cut back on—like electricity, water, medicine, or groceries. Even in tough times, demand stays steady.
Stable Cash Flows: They often have consistent revenue streams, which helps them weather economic storms without drastic cuts or layoffs.
Low Debt Levels: Many recession-proof companies avoid heavy borrowing, so they’re less vulnerable to rising interest rates or credit crunches.
Defensive Nature: They’re part of "defensive sectors" (e.g., utilities, healthcare, consumer staples), which historically hold up better than cyclical sectors (e.g., luxury goods, travel) during downturns.
Volatility Compared to Other Stocks
Volatility measures how much a stock’s price swings over time. Recession-proof stocks typically have lower volatility than the broader market or cyclical stocks. For example:
The S&P 500, a broad market index, might see sharp drops (20-30% or more) during a recession, driven by volatile sectors like technology or industrials.
In contrast, recession-proof stocks—like those in utilities or healthcare—often have a lower "beta" (a measure of volatility relative to the market). A beta below 1 means they’re less reactive to market swings. For instance, utility stocks might only dip 5-10% when the market tanks 20%, or even stay flat.
That said, they’re not immune to downturns. They can still lose value, just less dramatically than high-growth or speculative stocks.
Why Are They Useful in a Portfolio?
Including recession-proof stocks in your portfolio offers several benefits:
Risk Reduction: They act as a buffer, balancing out riskier investments like tech startups or small-cap stocks.
Income Stability: Many of these companies pay reliable dividends, providing a steady income stream even when stock prices stagnate.
Peace of Mind: For beginners, they offer a less stressful way to ride out market turbulence without panic-selling.
Diversification: They complement growth-oriented stocks, creating a more resilient mix that can handle different economic phases.
Examples of Recession-Proof Stocks
Let’s take Liberation Day on April 2nd, 2025, as the latest macro shake-up in the market. Stocks plunged into the red by the end of the week, yet some emerged as ‘winners’. Interestingly, these ‘winners’ also happen to be recession-proof, demonstrating resilience even in turbulent economic conditions.
→ Coca-Cola (KO)
What it is: A global beverage company famous for Coke, Sprite, and other soft drinks.
Why it’s stable: People buy drinks in good times and bad—it’s a small, affordable purchase.
Appeal: Reliable dividends and a strong brand make it a steady pick.
→ McDonald’s (MCD)
What it is: A fast-food chain serving burgers, fries, and more worldwide.
Why it’s stable: Cheap meals do well in recessions as people cut back on fancy dining.
Appeal: Consistent sales and dividends make it a beginner-friendly choice.
→ Johnson & Johnson (JNJ)
What it is: A healthcare giant making medicines, medical devices, and products like Band-Aids.
Why it’s stable: People need healthcare no matter the economy.
Appeal: Trusted name with steady growth and dividends.
→ Waste Connections (WCN)
What it is: A company that collects and manages trash and recycling.
Why it’s stable: Garbage pickup is essential—people don’t stop needing it.
Appeal: Predictable revenue makes it a low-drama investment.
→ Metro (MRU)
What it is: A Canadian grocery chain selling food and essentials.
Why it’s stable: Food is a must-have, even in tough times.
Appeal: Strong in Canada, with steady demand and some dividends.
→ Telus (T)
What it is: A Canadian telecom company offering phone, internet, and TV services.
Why it’s stable: People keep paying for connectivity, even in recessions.
Appeal: Reliable dividends and a growing need for internet access.
→ Fortis (FTS)
What it is: A utility company providing electricity and gas, mostly in Canada and the U.S.
Why it’s stable: Power and heat are non-negotiable expenses.
Appeal: Very safe with consistent dividends—great for cautious investors.
→ Dollarama (DOL)
What it is: A Canadian discount store chain selling cheap everyday items.
Why it’s stable: Shoppers flock to bargains during economic slumps.
Appeal: Growth potential and resilience in tough markets.
→ Gold (GLD, ZGLD, etc.)
What it is: An exchange-traded fund (ETF) that tracks the price of gold, not a company.
Why it’s stable: Gold often holds or gains value when stocks crash, acting as a “safe haven.”
Appeal: Diversifies your portfolio; no dividends but protects against big losses.
Conclusion
Nothing is guaranteed, so don’t be misled. While these stocks are often regarded as recession-proof, they are still vulnerable to company-specific challenges and broader market downturns. However, when the market turns red due to macroeconomic factors, it presents a valuable opportunity for investors to assess which stocks demonstrate resilience. The next time you see red, take a step back, analyze the broader picture, and ask yourself why—it’s in these moments that an informed investment thesis begins to take shape.
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