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5 Best Recession Stocks

Stock markets tend to slide in a recession, but some companies hold up better than others.

Written by Devon Delfino / June 22, 2022

Quick Bites

  • Stock markets can suffer during a recession as companies take the hit of consumers curbing their spending habits.
  • That said, not all industries suffer in a recession; some can perform well enough to endure downturns.
  • Recessions are short-term events; when investing in the stock market, you should generally be looking at a long-term financial strategy.

Investing in stocks is a gamble at any time. But when we get hit with a recession, more than likely the markets will turn lower alongside the economy. You’ll see a lot of companies whose shares sink, but there are assets out there that can hold up well when the economy slumps.

Here’s a bit more about stocks in times of recession.

Inside this article

  1. What’s a recession?
  2. What are stocks?
  3. Best stocks in a recession
  4. Which are the worst?

What’s a recession?

A recession is a period of widespread economic downturn. Often, this will last more than a few months, though less than a year. [1] So during a recession, you may see things your friends and family losing their jobs, and company revenue shrinking as both consumers and companies alike attempt to adjust to the economic turmoil and ride out the storm. The stock market is also likely to struggle in rough economic times.[2]

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What are stocks?

Stocks, also called equities, are a type of security (a financial asset) that gives you a share of ownership in a given company.[3] So, for example, if you were to buy a share of Apple, you’d own a teeny tiny sliver of the company. Stocks are traded on stock exchanges, like the New York Stock Exchange (which still has a physical presence) and the Nasdaq (which does not have a physical presence and never has).

Once you buy a stock, you can hold it for as long as you’d like. The idea is that you get to sell it for a higher price, and you take the profit on that trade. Of course, sometimes markets don’t do what you’d like and if you’re forced to sell when the price is lower than the one you bought it for, you’re going to lose money.

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In general, stocks rise over the long-term, which is why you’ll always hear that you buy and hold for many, many years to come. Maybe decades.[3]

A stock’s value can fluctuate based on many factors, like:

  • How much of a company’s product or services sell–if it’s revenue rises or falls

  • Profit-is it making money off of that revenue or are costs too high?

  • Geopolitical events that disrupt the status quo–a war, for example, that causes oil prices to soar

  • General confidence in the company–good leaders and strong management are often rewarded

Which are the best stocks to buy and hold in a recession?

Very, very broadly speaking, any company that makes something we can’t live without–food, healthcare, electricity–will hold up in a recession.

While every recession is different, studying earlier recessions can help identify some winners, says Kunal Sawhney, chief executive officer of the Kalkine Group, an equities research firm. He points to the following as some examples of companies that are likely to make it through a recession:

Target (TGT)

Target is a popular general merchandise retailer, with stores located throughout the U.S. In fact, changes are that you live within 10 miles of one of their stores.[4] Target sells a very wide range of basic necessities, and anything you can’t live without (say, diapers or cereal) will continue to sell well in bad times.

Synopsys Inc (SNPS)

Synopsys is a tech company with services across many industries, including medical, aerospace and defense, and financial services. It designs software to work with chips–those little things that are in short supply and part of the reason supply chains are tied up and inflation is hitting anything with a chip component.[5]

Baxter International (BAX)

Baxter International is a medical technology company that has existed for nearly a century. Our health is always a priority, even in a recession. [6]

Walmart (WMT)

Just like Target, Walmart has our basic necessities taken care of. It’s also got a healthy reputation as a cost-effective company.[7]

NextEra Energy Inc (NEE)

NextEra Energy owns the not unsubstantial Florida Power & Light. Florida cannot live with air conditioning and it has one of the fastest growing populations in the country as we seek refuge from high income tax states that have frigid weather. In general, we’re depending more and more on electricity, so utilities are likely a safer bet.[8,9]

Alert

This is not an endorsement of these companies. They are merely examples provided by Sawhney of which industries are likely to survive well in a recession. And don’t forget, the market is a gamble. No one really knows what’s going to happen next. Invest with a measured, level-headed approach, focus on diversification to minimize your risk and play the long game.

What do they have in common?

These companies tend to be staple stocks. Even in tough times when there isn’t as much money to go around, we still need them, says Sawhney.

“Investing during a recession can be very tricky, and it takes sound knowledge and help from connoisseurs to protect one’s portfolio,” he says. “Usually, large companies with a long track record of profitability are the best bet during a recession.”

“A recession means there is less money available to spend,” says Naoshad Pochkhanawala, an estate and financial planner at Amiko Benefits Inc. “People will keep buying toothpaste. They will keep buying food.”

Which are the worst?

On the other side of the spectrum, there are stocks in industries that tend to wither during recessions. Again, it helps to think about the way that people behave when money is tight. After all, you’re probably not going to want to spend money on things that aren’t necessities if you just got laid off. The big question is: How discretionary is this product or service?

Here are a few examples that tend to perform poorly during recessions:

  • Restaurants

  • Real estate

  • Travel

  • Entertainment

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The Fed Fights Recessions by Dropping Rates—Unless Inflation’s Out of Control

The Federal Reserve has eased past recessions by cutting interest rates, but right now it’s committed to raise rates to bring inflation under control.

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“Recessions are scary for those who aren't prepared, and if you are planning to retire at the beginning of one it is even scarier,” says Pochkhanawala. “Hopefully, if you are a retiree you've already taken a portion of your retirement funds and purchased a lifetime stream of income to cover your basic expenses. If not perhaps you should be talking to a retirement planner who can explain the pros and cons of life annuities in an inflationary market.”

We’ll say it again: Your best bet is to ignore the short-term and focus on the long-term. Which companies do you believe in? Which will succeed over the next 10, 20, 30 years or more? Don’t get too caught up in the short-run, unless you have change to spare.

Article Sources
  1. “Business Cycle Dating Procedure: Frequently Asked Questions.” National Bureau of Economic Research. July 19, 2021. https://www.nber.org/business-cycle-dating-procedure-frequently-asked-questions.
  2. “Stock Prices in the Financial Crisis.” Federal Reserve Bank of Atlanta. September 2009. https://www.atlantafed.org/cenfis/publications/notesfromthevault/0909.
  3. “Stocks: What are stocks?” Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/investment-products/stocks.
  4. “All about Target.” Target. https://corporate.target.com/about.
  5. “About Us.” Synopsys. https://www.synopsys.com/company.html.
  6. “Our Story.” Baxter International. https://www.baxter.com/our-story.
  7. “Walmart Inc. net sales exceed $150 billion in Q4.” Walmart, Inc. https://corporate.walmart.com/media-library/document/q4-fy22-earnings-release/_proxyDocument?id=0000017f-0521-deb8-ab7f-372d1d5a0000.
  8. “Company Overview.” NextEra Energy. https://www.investor.nexteraenergy.com/company-overview.
  9. “Why New Yorkers are moving to Florida.” AMG International Realty. https://www.amgintrealty.com/why-new-yorkers-are-moving-to-florida/

About the Author

Devon Delfino

Devon Delfino

Devon Delfino is a writer who’s covered personal finance—including everything from student loans to budgeting to saving for retirement and beyond—for the past six years. Her financial reporting has appeared in publications like the L.A. Times, U.S. News and World Report, Teen Vogue, Masha

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