Top 5 US Stocks for a Recession

Wholesale consumer staples providing favorable pricing for budget-conscious households.

• Consumer staples like groceries, clothing and household goods will see very little change in their demand because they are vital to the lives of consumers. The top line of consumer staple retailers will be largely unaffected by economic recessions. Costco’s (NASDAQ:COST) operations should be fairly resistant to the pressures of an economic recession, providing consumers with the necessities they need at wholesale pricing. This should be favorable to Costco as consumers become more price conscious as household budgets tighten.

High military expenditure and lucrative government contracts keep revenue consistent.

• Government expenditure on the military is usually high and remains consistent during economic recessions. Companies with lucrative government contracts should out-perform the market due to relatively unchanged levels of customer expenditure. Given global military spending has eclipsed US$2 trillion in real terms for the first time in history, governments will be hesitant to budge on defense expenditure even when pressure is placed on national budgets to ensure strategic advantage is not lost.
• Raytheon Missiles & Defense, a subsidiary of Raytheon Technologies, has continued to secure lucrative contract awards over the last few months. Raytheon has managed to secure a US$867M Missile Defense Agency contrac and a US$624M U.S. Army contract to produce 1,300 Stinger missiles. This should give investors some peace of mind that the business remains strong during a tough economic climate.

Persistent demand even during tough economic conditions.

• Much like consumer staples, electricity is a necessity for households regardless of the economic climate. The demand for electricity is relatively inelastic and so generators and suppliers will see relative strength compared to the rest of the market. Seeing as it’s one of the largest utility companies in North America, NRG Energy (NYSE:NRG) should see relatively little impact to its operations. Recently, analysts covering NRG Energy have actually improved their outlook for the remainder of 2022 , increasing revenue forecasts US$28B for the year. A testament to the expectation of continued demand from customers irrespective of the economic stresses that look to impact household budgets.

Consistent need for funeral services means consistent revenues during recessions.

• Death is a certainty and this definitely does not change during recessions. Providers of funeral services and cemetery operators should not experience a noticeable change in overall demand for their offerings. Service Corp (NYSE:SCI), largest provider of funeral, cremation and cemetery services throughout North America has recently upped their full year guidance, which they attribute to more funeral services being performed and higher pre-need cemetery sales. If a recession occurs, revenue per funeral may decrease however this should be offset by the tailwinds of an aging population and recent acquisitions bearing their fruit.

Recent asset sales allow capital to be committed to future growth.

• During recessions, capital appreciation becomes a rarity. Decreased economic activity generally leads to a fall in earnings across the board and share prices suffer as a result. Dividend stocks usually withstand economic shocks better than growth stocks and so a company with a stable dividend stable will be an attractive option for investors seeking reduced share price volatility.
• A study from S&P Global into the Case for Dividend Growth Strategies revealed that the Dividend Aristocrat index provided greater downside protection in tougher economic conditions, with an average monthly return of -7.29% during the 15 worst months for the market, compared to the S&P 1500 Composite at -9.58%. So in theory, 3M’s high dividend yield should provide shareholders with a buffer against market volatility in economic downturns.