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10 Recession-Proof Stocks to Buy and Hold

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·11 min read
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In this article, we discuss 10 recession-proof stocks to buy and hold. If you want to see some more stocks that can withstand recession, click 5 Recession-Proof Stocks to Buy and Hold.

With inflation at a 40-year high, the Russia-Ukraine war and resultant energy crisis, the risk of a recession is looming on the horizon. According to Bloomberg, Goldman Sachs analysts headed by chief economist Jan Hatzius have slashed growth potential for US GDP to 1.75% from 2%. The team also implied that the chances of recession as indicated by the yield curve are 20%-35% in the next year.

Although the US trade with Russia and Ukraine accounts for less than 0.05% of the total GDP, the public has experienced indirect hits in terms of higher prices, supply chain shortages, oil crisis, and stock market uncertainty - all of which have shaken consumer confidence.

“Recession is Imminent”

David Rosenberg, the principal strategist of Toronto-based Rosenberg Research & Associates Inc, stated on March 16 that in an attempt to beat the US inflation issue, the Fed will inadvertently push the economy into a recession. The US economy is already slowing down, and Rosenberg recalled how it took two recessions in 1981 and 1982 to resurrect the market from the clutches of a decade-long inflationary period.

Rosenberg further observed that the housing market and stock market are both in a bubble. He also cited the ADP national employment report that showed a contraction in employment in the small-business sector during February, while large-scale businesses were still hiring. The small-business segment is a realistic indicator of the economic conditions according to David Rosenberg, and it is “telling you that recession is imminent”.

Some of the notable recession-proof plays in this economy include The Procter & Gamble Company (NYSE:PG), UnitedHealth Group Incorporated (NYSE:UNH), and Dollar General Corporation (NYSE:DG), among others discussed extensively below.

Photo by Austin Distel on Unsplash

Our Methodology

We picked stocks from the sectors which have historically proven to be recession-proof, such as consumer staples, healthcare, tobacco, food processing, and retail. We ensured that all stocks in this selection received positive analyst ratings recently, and the companies were popular among the smart money.

Data from 924 elite hedge funds tracked by Insider Monkey during the fourth quarter of 2021 was used to identify the number of hedge funds that hold stakes in each firm.

Recession-Proof Stocks to Buy and Hold

10. British American Tobacco p.l.c. (NYSE:BTI)

Number of Hedge Fund Holders: 18

British American Tobacco p.l.c. (NYSE:BTI) is a multinational producer and distributor of tobacco and nicotine products, based in London. Some of its famous brands include Dunhill, Lucky Strike, Pall Mall, Rothmans, Camel, and Newport.

Morgan Stanley analyst Rashad Kawan lowered the price target on British American Tobacco p.l.c. (NYSE:BTI) to £3,780 from £3,820 and kept an Overweight rating on the shares on March 17. The tobacco sector has historically outperformed amid recessions. As unemployment rises in recessionary periods, individuals turn to cigarettes and alcohol to drown their worries, which bodes well for stocks like British American Tobacco p.l.c. (NYSE:BTI).

On February 17, British American Tobacco p.l.c. (NYSE:BTI) declared a $0.735 per share quarterly dividend, a 1.4% increase from its prior dividend of $0.725. The dividend is payable on May 9, to shareholders of record on March 25. The stock yields 7.09% as of March 18.

The company announced on March 11 its exit from Russia amid the war, and British American Tobacco p.l.c. (NYSE:BTI) consequently revised its guidance for 2022. Now, the company expects revenue growth of 2% to 4% and mid-single figure adjusted diluted EPS growth. British American Tobacco p.l.c. (NYSE:BTI) disclosed that Ukraine and Russia accounted for 3% of the total revenue in 2021.

A total of 18 hedge funds were long British American Tobacco p.l.c. (NYSE:BTI) in Q4 2021, up from 9 funds in the quarter earlier. Rajiv Jain’s GQG Partners is the leading shareholder of British American Tobacco p.l.c. (NYSE:BTI), with more than 15 million shares worth $567.7 million.

In addition to The Procter & Gamble Company (NYSE:PG), UnitedHealth Group Incorporated (NYSE:UNH), and Dollar General Corporation (NYSE:DG), British American Tobacco p.l.c. (NYSE:BTI) is a notable defensive play against recession.

9. Diageo plc (NYSE:DEO)

Number of Hedge Fund Holders: 19

Diageo plc (NYSE:DEO) sells alcoholic beverages worldwide, with a product portfolio consisting of scotch, whisky, gin, vodka, rum, liqueur, wine, and tequila. The company has multiple brands under its domain, including Johnnie Walker, Crown Royal, Bulleit and Buchanan, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness.

The beverage and alcohol industry is generally considered to be recession-proof, and while beer sales tend to decline, volumes for hard liquor go up. This makes Diageo plc (NYSE:DEO) a reliable stock to hold in the current market environment.

Diageo plc (NYSE:DEO) on February 23 declared a £0.2936 per share interim dividend, an increase of 5% from its prior dividend. The dividend will be paid on April 12, for shareholders of record February 25.

Diageo plc (NYSE:DEO) posted on January 27 a 1H non-GAAP EPS of £0.85, beating consensus by £0.05. The company’s revenue of £7.96 billion was up 15.9% year-over-year, surpassing estimates by £290 million.

JPMorgan analyst Celine Pannuti upgraded Diageo plc (NYSE:DEO) on March 17 to Overweight from Neutral with an unchanged price target of £4,350. According to the analyst, Diageo plc (NYSE:DEO) is positioned to outgrow its peers in the United States, with more premium pricing, a solid tequila range, and strong investments. The analyst believes that Diageo plc (NYSE:DEO)’s U.S. portfolio will experience organic sales and EBIT growth will be at the upper end of the announced guidance.

Among the hedge funds tracked by Insider Monkey, Nicolai Tangen’s Ako Capital is the largest shareholder of Diageo plc (NYSE:DEO), with 1.7 million shares worth $382.6 million. Overall, 19 hedge funds were bullish on Diageo plc (NYSE:DEO) at the end of December 2021.

Here is what Weitz Investment Management has to say about Diageo plc (NYSE:DEO) in its Q1 2021 investor letter:

“We sold Diageo after twelve years of very profitable ownership. The global spirits company has done a fine job of growing earnings, and the stock has enjoyed an extra boost from substantial, multiple expansions along the way. While the business is in good hands, we think a repeat of our mid-double-digit annualized return experience is far less likely. We simply see better risk/reward profiles in the Fund’s other quality holdings.”

8. Unilever PLC (NYSE:UL)

Number of Hedge Fund Holders: 23

Unilever PLC (NYSE:UL) was incorporated in 1894 and is headquartered in London, operating via beauty and personal care, foods and refreshment, and home care segments. The company sells its products under multiple brands, including Ben & Jerry's, Knorr, Magnum, Wall's, Axe, Dove, Lifebuoy, Lux, Rexona, Sunsilk, Hellmann's, and Vaseline.

As recession indicators flare up in the economy, companies like Unilever PLC (NYSE:UL) are positioned to benefit as spending on essential consumer products does not diminish during a recession.

On March 14, Bernstein analyst Bruno Monteyne upgraded Unilever PLC (NYSE:UL) to Market Perform from Underperform. The analyst cited valuation for the upgrade after the recent pullback in shares.

Unilever PLC (NYSE:UL) on February 23 declared a $0.482 per share quarterly dividend, a 2.2% decrease from its prior dividend of $0.493. The dividend will be paid on March 22, for shareholders of record February 25.

Gardner Russo & Gardner is the leading shareholder of Unilever PLC (NYSE:UL) as of Q4 2021, with 8.50 million shares worth $457.2 million. Overall, 23 hedge funds reported owning stakes in Unilever PLC (NYSE:UL), up from 17 funds in the prior quarter.

Here is what Fundsmith Equity Fund has to say about Unilever PLC (NYSE:UL) in its Q4 2021 investor letter:

“Unilever PLC (NYSE:UL) seems to be laboring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business. The most obvious manifestation of this is the public spat it has become embroiled in over the refusal to supply Ben & Jerry’s ice cream in the West Bank. However, we think there are far more ludicrous examples which illustrate the problem. A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches). Although Unilever had by far the worst performance of our consumer staples stocks during the pandemic, we continue to hold the shares because we think that its strong brands and distribution will triumph in the end.”

7. Tractor Supply Company (NASDAQ:TSCO)

Number of Hedge Fund Holders: 31

Tractor Supply Company (NASDAQ:TSCO) is a Tennessee-based home improvement retailer that provides tools and supplies for agriculture, garden maintenance, livestock, and pet care. The company sells mainly to recreational farmers, ranchers, and people who own lands.

Tractor Supply Company (NASDAQ:TSCO) is a recession-proof stock given that many people try to benefit from the lower interest and mortgage rates during recessionary periods to purchase and remodel homes. In addition to that, land owners tend to return to ranching during rampant unemployment, increasing demand for products of companies like Tractor Supply Company (NASDAQ:TSCO).

On January 27, Tractor Supply Company (NASDAQ:TSCO) declared a $0.92 per share quarterly dividend, a 76.9% increase from its earlier dividend of $0.52. The dividend was distributed on March 8, to shareholders of record on February 21.

Oppenheimer analyst Brian Nagel upgraded Tractor Supply Company (NASDAQ:TSCO) on March 18 to Outperform from Perform with a $270 price target. The analyst stated that Tractor Supply Company (NASDAQ:TSCO) is "one of the best run, most optimally-positioned, still expanding retail chains, within discretionary”. While the analyst believes that Tractor Supply Company (NASDAQ:TSCO)’s business model strengthened during the COVID-19 pandemic, the business still faces "fortifying macro tailwinds" including higher fuel prices and demographic shifts. He indicated the "promising" productivity enhancing initiatives and a "still compelling" share valuation for the upgrade.

Select Equity Group is the leading shareholder of Tractor Supply Company (NASDAQ:TSCO), with 2.30 million shares worth roughly $549 million. Overall, 31 hedge funds were bullish on the stock at the end of December 2021.

Here is what Wedgewood Partners has to say about Tractor Supply Company (NASDAQ:TSCO) in its Q4 2021 investor letter:

“Tractor Supply contributed favorably to performance during the quarter. Demand from the Company’s niche, affluent rural customer base continues to surge in a post-COVID world with comparable store sales running over +40% higher compared to pre-pandemic (2019) levels. Tractor Supply is seeing growth across all channels, from its website to e-commerce that is fulfilled by its 2000-store fleet to regular in-store traffic. The Company is also managing inflation and supply chain disruptions extremely well, passing through nearly +7% of inflation on consumable goods and managing a quarterly inventory in-stock rate that was actually higher than pre-pandemic. Tractor Supply is an exceptional retailer, and we continue to hold it as a top position.”

6. Bunge Limited (NYSE:BG)

Number of Hedge Fund Holders: 38

Bunge Limited (NYSE:BG) was founded in 1818 and is headquartered in St. Louis, Missouri, operating as an agribusiness and food company worldwide. The food and agriculture sectors are widely considered to be recession-proof, since people consume homemade meals and avoid dining out, increasing sales volumes for businesses like Bunge Limited (NYSE:BG).

Bunge Limited (NYSE:BG) on February 24 declared a $0.525 per share quarterly dividend. The dividend is payable on June 2, to shareholders of record on May 19. The stock yields roughly 2% as of March 18.

In its Q4 earnings report, published on February 9, Bunge Limited (NYSE:BG) posted an EPS of $3.49, above consensus by $0.62. Revenue over the period jumped 32.30% year-on-year to $16.68 billion, surpassing market predictions by $1.19 billion.

Barclays analyst Benjamin Theurer raised the price target on Bunge Limited (NYSE:BG) to $120 from $110 and kept an Overweight rating on the shares on February 14. The analyst projects "another solid year" for Bunge Limited (NYSE:BG) after the management guided for earnings per share to reach at least $9.50 in fiscal 2022.

A total of 38 hedge funds held long positions in Bunge Limited (NYSE:BG) in Q4 2021, up from 37 funds in the prior quarter. Jack Woodruff’s Candlestick Capital Management is the biggest shareholder of Bunge Limited (NYSE:BG), with more than 1 million shares worth $95.6 million.

Bunge Limited (NYSE:BG) is gaining traction among elite hedge funds, just like The Procter & Gamble Company (NYSE:PG), UnitedHealth Group Incorporated (NYSE:UNH), and Dollar General Corporation (NYSE:DG).

Click to continue reading and see 5 Recession-Proof Stocks to Buy and Hold.

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Disclosure: None. 10 Recession-Proof Stocks to Buy and Hold is originally published on Insider Monkey.