In the new century, economic uncertainty often looms. Finding investment opportunities that can weather the storm is a quest every investor undertakes. The article lists the “Recession-Proof Royals”, three titans of their respective industries who have not only stood the test of time but have thrived during economic downturns. These can be considered recession proof stocks.
The first one’s diverse product categories maintain stable demand, regardless of the economic climate. The second one’s multifaceted presence in healthcare ensures consistent revenue streams. And the third, with its iconic brand recognition and innovative approach to customer experience, remains a stronghold even when times are tough.
The article delves into the strategies that make these companies recession-resistant. From global diversification to groundbreaking innovations, it explores how these giants continue to shine even in the darkest economic clouds. So here are the best recession proof stocks to consider.
Procter & Gamble (PG)
The consumer demand for these essential products remains relatively stable during economic downturns. P&G has achieved consistent organic sales growth, even in challenging economic environments. For five consecutive years (starting in fiscal year 2019), the company has achieved organic sales growth of 5% or higher.
Fundamentally, P&G’s strategy focuses on driving market growth, which, in turn, leads to share growth. The company consistently outpaces category growth, driving value and volume share growth. This indicates that P&G is maintaining its market position and gaining ground even in challenging times. P&G operates in markets around the world. This global footprint helps mitigate risks associated with regional economic downturns. Even if one market is experiencing difficulties, P&G can offset losses through growth in other regions.
Notably, P&G has adapted to changing consumer preferences by increasing its presence in the e-commerce space. E-commerce sales grew by 7%, representing 17% of the company. This digital transformation allows the company to reach consumers directly.
Despite significant cost headwinds, including material costs and foreign exchange fluctuations, P&G has managed to maintain strong earnings growth. Core earnings per share increased by 2% for fiscal 2023 and by 11% on a currency-neutral basis. This ability to manage costs effectively contributes to the company’s recession resistance.
Finally, P&G’s consistent free cash flow productivity, which reached 95% (Q4 2023), allows the company to reward shareholders through dividends and share repurchases. This steady stream of returns makes P&G an attractive option during economic uncertainties.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) operates across multiple sectors within the healthcare industry, making it less vulnerable to economic downturns in any single segment. The company’s business is divided into three main segments: pharmaceuticals, MedTech (medical devices), and consumer health. Each segment serves different markets and has its unique revenue streams.
Notably, Johnson & Johnson’s pharmaceutical business continues to grow strongly, with operational sales growth of 6.2% YoY (Q2 2023). This segment is driven by a portfolio of products targeting various medical conditions, including multiple myeloma, Factor XI oral anticoagulant, lung cancer, and more. The diversity of therapeutic areas helps shield the company from the impact of economic recessions, as healthcare spending typically remains consistent.
Similarly, the MedTech segment is experiencing impressive operational growth, particularly in electrophysiology and orthopedics. The company’s medical devices, including robotic-assisted surgery systems and innovative catheters, are well-received in the market. Johnson & Johnson’s efforts to improve the growth of this segment have shown success, with operational sales growth of 14.7% YoY.
Strategically, the company consistently invests in research and development (R&D), allocating 15% (Q2) of its sales to R&D. Johnson & Johnson is involved in pioneering treatments, drugs, and medical devices, which not only generate revenue but also strengthens the company’s position as a leader in healthcare. Ongoing research and the launch of new products, such as CARVYKTI, TECVAYLI, and the SmartfiRE study, indicate a focus on staying at the forefront of healthcare innovation.
Lastly, the company’s pharmaceutical and MedTech pipelines will be significant growth drivers in the coming years. Introducing new products in areas like multiple myeloma, oral anticoagulants, surgical robotics, and vision care positions supports the company in generating substantial revenue and expanding its presence in critical healthcare markets. All in all, it’s one of those recession proof stocks.
McDonald’s (MCD)
McDonald’s (NYSE:MCD) boasts one of the most recognizable and resilient brands globally. This brand recognition provides a critical cushion during economic downturns. Consumers often gravitate toward familiar and trusted brands during times of uncertainty, and McDonald’s, with its iconic Golden Arches, has capitalized on this phenomenon.
The company’s brand strength is further reinforced by its consistent marketing efforts. For instance, the recent Grimace phenomenon garnered significant attention and engagement on social media (3 billion views on TikTok), underscoring the brand’s ability to stay relevant and capture consumer interest.
A pivotal factor in McDonald’s long-term recession resilience is its focus on enhancing the customer experience. The reintroduction of the PACE program (People, Accuracy, Cleanliness, and Efficiency) exemplifies this dedication. Operational improvements and increased customer satisfaction across major markets underscore the success of these initiatives. Moreover, creating the Chief Restaurant Officer role ensures a continued focus on driving strategic plans and execution at the local level, which is crucial for sustained customer satisfaction.
Historically, McDonald’s has shown its agility in adapting to evolving consumer preferences. Initiatives such as the takeaway-only restaurant in Fort Worth, Texas, cater to changing customer behaviors. Similarly, introducing food lockers in high-traffic locations streamlines the order pickup process, enhancing efficiency. Furthermore, the company’s commitment to exploring new concepts like CosMc’s is a small format with a unique personality. This makes it one of those recession proof stocks.
A key element of McDonald’s recession-proof strategy is its value-oriented approach. The McSmart menu in Germany and Saver Meal deals in the UK exemplify the company’s focus on providing customers with affordable options, even in challenging economic times. Maintaining a leadership position in value for money across major markets ensures customers continue to view McDonald’s as a reliable and cost-effective dining option, bolstering its recession resilience.
On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.