3 RECESSION RESISTANT STOCKS

By Grant Bailey, Equity Analyst 

Unfortunately, an upcoming recession may be on the horizon. Of course, you’ve got so many so-called “experts” who’ve predicted 50 of the last 3 recessions… but in this situation, might there be a real reason to believe another recession is on its way to the USA? No, we don’t have a reason to believe this to be potentially true; we have many. So, where are the signs? Well, to be quite frank, they are everywhere: slowed job growth, rising unemployment, and entertainment industries flunking. Additionally, the phrase “help with mortgage” reached a higher search interest level in August of this year than it did in March of 2009, according to Google Trends. Another alarming insight is that the average number of weeks unemployed in August rose to 24.5, a number that hasn’t been seen since early 2022.

So, knowing an impending recession is very possible, what should you be searching for in the stock market? The typical criteria for stocks that can thrive in a poor economy would include low debt (0.5 debt-to-equity ratio or lower), a low payout ratio (below 50%), and a high dividend growth rate (~10% over multiple years). A debt-to-equity ratio evaluates a company based on the company’s value comparative to its amount of long-term debt, a dividend growth rate indicates the approximate average increase of a stock’s dividend, and a payout ratio highlights the sustainability of a company’s current dividend. What you should also be looking for are non-cyclical companies, meaning they are less reliant on the economy’s health for steady returns. What primarily determines a company’s cyclicality is how price-inelastic its products are. Sure, you’ve now got all of that information at your fingertips, but do you really want to go through the hassle of screening and scouring the entire stock market for these companies? No worries, we’ve done it for you. So, with that said, let’s take a look at the 3 stocks we chose that seem to be the most inflation-resistant picks you could have!

Abbott Laboratories

Our first pick for this specific article is Abbott Laboratories, a diversified healthcare giant. Abbott is considered non-cyclical because of how essential many of their products are in the healthcare industry. On the quantitative side, what does Abbott have to offer? For starters, low debt: Abbott’s debt-to-equity ratio is an impressive 0.25, a number that’s been steadily declining since 2017. Abbott also boasts a dividend payout of $2.30, which has increased massively from their payout of less than a dollar in 2018. With a payout ratio of less than 30%, Abbott should be able to maintain this incredible dividend growth fairly easily for years to come. If you want a stock that hedges to perfection against recessions, you’ve got yourself a solid outlier right here.

Anderson’s

As for our second pick, we went with Anderson’s. Anderson’s is a large company offering a broad array of critical products to agriculture and horticulture. But why would I choose a stock associated with a cyclical sector? Anderson’s is different from its competition in that it’s invested in such a wide range of investments that they’re actually partially non-cyclical. Its investments in other areas related to industrial products and plant nutrients allow it to maintain at least some stable revenue, regardless of how the economy shapes out. As for the quantitative argument, Anderson’s shows considerable stability: It hasn’t decreased its dividend payout since 2007, its debt-to-equity ratio is safely below 0.50 and has been that way since the latter half of 2021, and its payout ratio is only around 33%, meaning its dividend still has much more room to continue growth. All things considered, if you think a recession is possible but still maintain the belief that the market can hold steady, this is a great pick to ensure stability in either outcome.

Aptar Group

Lastly, with our final pick, we went with Aptar Group, yet another gigantic company, though this one is known for its strong presence in defensive, consumer staple markets. AptarGroup does have some exposure to the economy through its cosmetics, but predominantly, it’s considered to be a heavily non-cyclical stock (apart from cosmetics, other divisions offer core products critical to the pharmaceutical and packaging industry). The quantitative case for this company is quite an easy one to argue for: its debt-to-equity ratio nearly touches down to the floor at 0.20, its dividend payout has never decreased in the company’s multi-decade-long history, and its payout ratio hovers just barely above 30%, implying that Aptar is showing no signs of slowing down regarding its dividend payout. Furthermore, with a gross margin of nearly 40%, people seem willing to pay quite a bit for Aptar’s products, further indicating that they are likely essential, must-have products for consumers. This pick is a bit of a mix between Anderson’s and Abbott. Similar to Anderson’s, Aptar does have both cyclical and non-cyclical aspects. However, Aptar is still reasonably comparable to Abbot because of the slight similarity in their products sold and also because, like Abbott, Aptar is widely agreed to still be very strongly non-cyclical.

Legendary investor Warren Buffet is famous for commenting on recessions, “You never know who is swimming naked until the tide goes out.” In this case, we have done the research for you, and we feel reasonably sure that each of these companies will weather low tide with dignity and steadfast determination, just as they have many times before.