These stocks can still deliver fine results even in hard economic times.
These seven blue-chip stocks hold their ground when the economy stumbles.
During the global financial crisis of 2007-2009, Walmart Inc. (ticker: WMT) was the one company out of all 30 constituents in the Dow Jones Industrials Average to post a positive return between the beginning and end of the 2008 bear market. During the COVID-19 sell-off of March 2020, Walmart also regained all its losses within a couple of weeks and hit a new all-time high in April 2020, during the height of the pandemic. Walmart is hardly the only blue-chip company that can hold up during a downturn, though. These seven current and former Dow Jones component stocks all performed better than the broader market during both the 2008 meltdown and the 2020 COVID-19 crash. The distinct features of these seven companies should make them resilient in the next recession as well.
Walmart Inc. (WMT)
Discount retailers such as Walmart are the ultimate recession-proof businesses. People may forgo luxury shopping for an extended period. But folks have to pick up bread, toothpaste, pet food and other necessities with regularity. And whether they're going to the store or shopping on Walmart's e-commerce site, they may end up buying some other discretionary goods as well. Not everyone may love shopping at Walmart, but few retailers offer more value for the money. Walmart stock has traded roughly flat over the past two years, as the initial gains from pandemic-era shopping wore off. Supply chain and inflation issues have also caused pressure on Walmart's profit margins. However, Walmart is adjusting its inventory ordering to reflect the changing consumer environment. Meanwhile, the weakening economy should help drive more business at Walmart going forward.
McDonald's Corp. (MCD)
McDonald's was one of the best-performing stocks of major blue chips during the 2008 financial crisis, and it also bounced back quickly in 2020. It benefits from similar factors as Walmart. People need to eat, and during difficult economic times, cheapness tops other factors. Folks may prefer more fancy or gourmet options, but McDonald's ability to provide fast, tasty, filling food at a low price makes it unbeatable during a recession. McDonald's has another perk that separates it from many restaurant peers: Its real estate holdings. McDonald's is one of the world's largest owners of commercial real estate. During inflationary times, the value of McDonald's land parcels tends to increase significantly, making the company's overall value rise even if its sales or profits temporarily slip. McDonald's isn't glamorous, but during a recession, that's a feature, not a drawback.
Home Depot Inc. (HD)
Most investors associate Home Depot with the housing market. As such, it must have crashed in 2008, right? No, it didn't. Home Depot stock only dropped 12% in 2008, while the broader S&P 500 plunged 37%. Home Depot held its ground even as the economy crumbled due to problems in the housing and mortgage markets. The takeaway is that Home Depot isn't simply a bet on new home construction. In fact, during hard economic times, people may spend more on home repairs and maintenance to get the most out of their existing living arrangements. Foreclosures and other events that trigger changes of ownership at a house can lead to additional spending on building materials as well. Regardless of Home Depot's strength throughout the housing cycle, the bears are at it again, predicting doom and gloom for Home Depot, and the stock is down 31% year to date through Sept. 19. That's an opportunity for long-term investors.
Procter & Gamble Co. (PG)
Procter & Gamble has been a longtime giant in consumer staples and currently generates roughly $80 billion in annual revenues. The company had a rough patch in the 2010s as it struggled to grow amid rising competition. However, the personal care and cleaning products giant is back on a winning streak, posting at least mid-single-digit organic growth over the past four years. As it turns out, Tide, Pampers, Gillette, Head & Shoulders and Febreze still hold a ton of appeal to consumers during volatile times. In recent years, P&G also reconfigured its brand portfolio, selling off weaker brands while refocusing its efforts on its strongest category leaders. Though consumer preferences change over time, P&G has been able to roll with the punches. As proof of that, it has hiked its dividend an incredible 66 years in a row, making this an ultimate safe haven pick for income investors.
Pfizer Inc. (PFE)
Pfizer has been one of the most successful pharmaceutical companies of the past few years. According to data analytics company GlobalData, Pfizer enjoyed the third-fastest revenue growth out of the world's 20 largest biopharma companies between 2020 and 2021. Pfizer trailed only BioNTech SE (BNTX) and Moderna Inc. (MRNA) over that stretch. Investors might conclude that Pfizer is just a one-trick pony as it pertains to COVID-19 vaccines. However, Pfizer stock has historically performed well through recessions and economic cycles. The demand for lifesaving drugs tends to be stable regardless of economic conditions, and having the government as a major buyer of pharmaceuticals insulates the industry from economic swings. Pfizer stock is currently undervalued; it trades for less than 8 times estimated 2022 earnings and offers a 3.5% dividend yield.
Johnson & Johnson (JNJ)
The health care sector is a great place to find recession-proof stocks. And Johnson & Johnson is a unique example even within the sector. That's because J&J is broadly diversified and operates three different major businesses. It has a large pharmaceutical operation which generally contributes around half of its profits. Then there's the firm's medical devices, plus J&J also sells products for consumer health and wellness. This mix of divisions ensures that some part of J&J's business is outperforming regardless of what's going on with the economy or health care industry. Recently, medical device sales have struggled with hospitals delaying elective surgeries due to COVID-19. However, J&J should enjoy a recovery as hospitals return to more normal schedules. Meanwhile, shares sell for less 16 times forward earnings and offer a 2.7% dividend yield.
Kraft Heinz Co. (KHC)
Returning to 2008, one of the best performers in the Dow Jones Industrials Average was Kraft. The purveyor of packaged foods enjoyed strong demand as people ate more at home instead of eating out. Kraft has been through a corporate evolution since 2008. It spun off its Mondelez International Inc. (MDLZ) confectionery and beverages business. After that, Kraft made its industry-defining merger with Heinz. For some time after, Kraft Heinz did suffer through issues with slow growth and excessive debt following its merger. However, the company has rallied sharply from its lows. Kraft has enjoyed a better sales environment as the wave of inflation has allowed substantial price hikes. Shares are once again cheap, trading for less than 13 times this year's estimated earnings while offering a juicy 4.6% dividend yield. That's an attractive valuation for a reliable defensive stock.
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