As a general rule, the best stocks to invest in while the economy is plunged in a recession tend to be boring, get-the-job-done companies.
They have to be. In a recession, there's typically not a lot of money for much else.
No one has officially announced a recession yet - it usually takes six months to determine a recession has actually occurred. But according to 45 different economists, the U.S. is indeed in the midst of a recession. The National Association for Business Economics expects economic growth fell 2.4% in Q1, and will drop 26.5% in Q2.
While those same economists believe the U.S. economy will rebound in the second half of the year, the global picture isn't so bright. The International Monetary Fund believes the world economy will remain in a weakened state all year, with GDP contracting 3% - well below its January projection of 3.3% growth - before rebounding with 5.8% growth in 2021.
The companies best suited to survive, if not thrive, in this kind of environment, are defensive stocks that provide products and services people simply can't live without.
With this in mind, here are 20 best stocks to invest in during a recession. Some of these might not be the greatest stocks to hold once the U.S. and global economies have returned to normal. But all of them have loads of worth - to investors and consumers alike - as long as times are tight.
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Market value: $364.7 billion
Dividend yield: 1.7%
Analysts' opinion: 20 Strong Buy, 5 Buy, 7 Hold, 0 Sell, 1 Strong Sell
Walmart (WMT, $128.76) CEO Doug McMillion appeared on The Today Show on April 10 to discuss coronavirus-sparked panic buying. First, consumers ordered food and other consumables. Then, they turned to entertainment items such as jigsaw puzzles and board games. Now, they're ordering hair coloring and beard trimmers.
All of these are things that you can buy at Walmart. Thus while many companies have suffered tremendous financial hardship during this crisis, Walmart is among the major U.S. corporations actually hiring en masse to keep up with increased demand. Specifically, WMT plans on hiring 150,000 new workers, and it might need to expand past that. Of those jobs, about 80% to 85% are temporary in nature. However, that still means as many as 22,500 people could stay with Walmart on a permanent basis once the crisis ends.
That's good for employees. That's good for the employer.
Back in 2008, Slate magazine wondered why Walmart was thriving while the economy was tanking. The answer: Consumers could no longer afford to trade up; they were forced to survive by trading down. The 2020 recession could spark a similar trend, putting more money in the Walton family's bank accounts.
During the Great Recession, which lasted from December 2007 to June 2009, Walmart's stock delivered 9% on a total-return basis (price plus dividends). By comparison, the S&P 500 lost 34% over the same period. It looks like WMT might be one of the best stocks to invest in this time around, too. Since the bull-market peaked Feb. 19, Walmart's stock has posted a 9.9% total return versus a 17.5% decline for the index. There could be plenty more where that came from.
Market value: $44.3 billion
Dividend yield: 0.8%
Analysts' opinion: 19 Strong Buy, 1 Buy, 6 Hold, 1 Sell, 0 Strong Sell
Just as it it's a good sign Walmart is bringing on workers, the fact that Dollar General (DG, $176.11) is hiring 50,000 people by the end of April bodes well, too. Although many of the 50,000 jobs will be temporary, the discount retailer has added net new jobs of 35,000 over the past five years - an indication that some of the temporary workers might stay beyond the coronavirus.
As far back as August, investment professionals began to tout Dollar General as a stock to own during a recession.
"The good news is consumers often shop more at the dollar stores during periods of economic weakness," Mark DeVaul, portfolio manager at the Hennessy Equity and Income Fund (HEIFX), stated in August 2019. "We wouldn't expect a sharp increase in sales, but we suspect sales will remain stable at the dollar stores while other companies may feel greater pain."
In Dollar General's latest fiscal year, 78% of its revenue was from consumables, which includes a large number of products that consumers are going to want to buy for less during a recession.
The idea that dollar stores might be some of the best stocks to invest in amid a recession isn't just a lazy assumption. Dollar General's biggest competitor, Dollar Tree (DLTR), delivered an almost 200% return between December 2008 and December 2011 - five times the performance of the S&P 500. Dollar General didn't come public until November 2019, but its same-store sales improved by more than 9% in 2008 and 2009. It's abundantly clear these companies are tailor-made for tough economic times.
Market value: $187.6 billion
Dividend yield: 2.8%
Analysts' opinion: 10 Strong Buy, 2 Buy, 7 Hold, 0 Sell, 0 Strong Sell
Consumer staples plays have been among the best stocks of this bear market. Though, when you think about the fact that consumers have been pulling back on sugary sodas for years, PepsiCo's (PEP, $135.03) doesn't feel like a clear-cut winner.
However, the company hasn't ignored the changing tastes of consumers. In addition to its legacy soft drinks, it also sells Gatorade, Lipton iced teas, Tropicana juices, Bubly sparkling water, Naked smoothies, Aquafina water and Starbucks (SBUX) bottled drinks via a partnership with the coffee giant. Not to mention its enormous Frito-Lay snacks division, as well as Quaker Oats products.
PepsiCo grew overall earnings by 3.9% on a GAAP (generally accepted accounting principles) basis in fiscal 2019, and 4.5% on an organic basis, which adjusts for the impacts of acquisitions, divestitures, and foreign currency. A big driver of that growth was the company's Frito-Lay North America division, which grew revenues by 4.5%.
But where the snack-food business really contributed was its 5% increase in operating profit to $5.26 billion, or 51% of its total for the year. By comparison, PepsiCo Beverages North America had revenues that were 27% higher than Frito-Lay's, but operating profits that were 59% less. Without snacks, 2019 would have looked a lot different.
Back in 2009, Harvard Business Review covered how PepsiCo would deal with a recession:
"PepsiCo's goal is to reinvigorate its carbonated soft drink category with substantially increased marketing investments in Pepsi, Mountain Dew, and other products. These investments include a new upbeat 'Optimism' ad campaign, new packaging, and new point-of-purchase materials. PepsiCo also plans to increase activity in digital media specifically to target the youthful live-for-today segment."
That could educate what Pepsi does in the months ahead. While a CEO's first instinct is to cut costs across the board, it's vital that PepsiCo ensure that Frito-Lay, its extremely profitable business, remains in the good graces of consumers. So investors might expect the company to pour significant resources into its snack business in the coming recession while finding places to cut costs elsewhere.
Market value: $21.1 billion
Dividend yield: 2.2%
Analysts' opinion: 3 Strong Buy, 0 Buy, 16 Hold, 0 Sell, 0 Strong Sell
In a recession, there are guilty pleasures you can live without - 20-year-old Scotch, while wonderful, might need to wait when money's tight - and there are those you can't, like a good candy bar.
While Hershey (HSY, $142.60) might not be able to fully avoid taking a hit in a recession, it did a pretty good job in 2008. That year, Hershey reported sales of $5.13 billion, 3.8% higher than in 2007. Hershey produced a $311 million profit out of that, or 45.3% higher than a year earlier.
"Most food companies in 2008 did well," Frost & Sullivan analyst Christopher Shanahan said in March 2009. "Hershey was definitely one of the leaders."
Yes, HSY shares lost 6%, including dividends, during the Great Recession. But it outperformed the S&P 500 by 28 percentage points, and depending on when they entered, some investors actually squeezed gains out of Hershey.
Interestingly, Hershey increased its advertising in 2008, similar to what Pepsi did with its soft drinks. In times of difficulty, you have to stay front of mind with the consumer because if you don't, someone else will grab your customers. Equally important, HSY upped prices for its products, helping to offset higher input costs.
Should we go through an extended recession as a result of COVID-19, Hershey - which is outperforming the market by 7 percentage points since the bear market started - might bring out the same playbook. As a result, HSY might be one of the best stocks to invest in over the next year or so.
Market value: $105.5 billion
Dividend yield: 2.6%
Analysts' opinion: 10 Strong Buy, 2 Buy, 9 Hold, 0 Sell, 0 Strong Sell
Lockheed Martin's (LMT, $374.38) 13.3% decline through the bear market so far isn't sterling - it's just about 4 percentage points better than the total market. But it's doing considerably better than its defense peers, as Boeing (BA) and a few others have led the iShares U.S. Aerospace and Defense ETF (ITA) down a gaudy 36.1%.
Lockheed Martin is one of the better defensive plays in a recession because it generates a huge chunk of its sales from the Department of Defense, which is slated to spend $738 billion in 2020. Of that, approximately 90% goes to U.S. companies such as Lockheed Martin.
During the Great Recession, while consumer spending declined 8.2%, defense spending increased by 12.2%. Further, between 1970 and 2009, out of six recessions, defense spending increased in all but one.
No one should be surprised to hear that LMT generates roughly 70% of its annual revenue from the U.S. government. In fact, Lockheed Martin accounts for 28% of the DoD's total spending. While many companies are laying off employees, Lockheed Martin has added 1,000 new employees during the coronavirus crisis, with an ongoing search to fill another 5,000 open positions.
Lockheed Martin, then, should be among the most recession-proof stocks to invest in.
One last note: Investors might be worried that in mid-March, the company announced CEO Marilyn Hewson, who has run the company since 2013, would be replaced June 15 by James Taiclet, who has helmed American Tower (AMT) since 2003. But you don't make a leadership change during this kind of crisis unless you're confident your business is able to weather the challenges ahead.
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Market value: $29.3 billion
Dividend yield: N/A
Analysts' opinion: 10 Strong Buy, 0 Buy, 11 Hold, 1 Sell, 0 Strong Sell
O'Reilly Automotive (ORLY, $353.89) is one of the largest sellers of aftermarket automotive parts in the U.S. The company had 5,439 stores in the U.S. at the end of 2019, along with 21 stores in Mexico.
O'Reilly has done a good job of balancing its revenues between DIY customers and professional shops; the business model has held ORLY in good stead for decades. Last year's revenues were split 55% to do-it-your customers and 45% to owners of automotive repair shops. During a recession, it's possible that sales to DIY customers will increase as people choose to save money by doing their own repairs.
In early March, before the coronavirus decimated stocks, investors bid up share prices of companies like O'Reilly because of their natural resilience during recessions.
"The market is reading this as, no one will be buying new cars for a while," Kevin Tynan, a senior analyst with Bloomberg Intelligence, told Bloomberg News. "If consumers are retrenching, they will keep their cars longer. There is a natural resilience to these companies."
In October 2019, Kiplinger's Personal Finance Associate Editor Ryan Ermey discussed how the company survived the disruption that Amazon.com (AMZN) was expected to bring to the car-parts business when the e-commerce giant entered the fray in 2017. While ORLY sank on initial fears, it has since doubled from its 2017 lows - even accounting for this year's losses. And so far through the current bear market, O'Reilly's stock has declined less than 10%.
ORLY should hold its own and earn its place among stocks to invest in for the coming recession.
Market value: $77.5 billion
Dividend yield: 2.1%
Analysts' opinion: 9 Strong Buy, 3 Buy, 8 Hold, 0 Sell, 3 Strong Sell
The latest data from Nielsen suggests that online liquor sales during the coronavirus are booming. During the week ended March 21, alcohol sales were up 55% compared to the same period a year earlier. Even more impressive, online liquor sales were up 243%. They cooled off a little for the week ended March 28, with overall sales up 22%. However, online liquor sales grew by 291% year-over-year, suggesting that not every industry is hurting in these challenging times.
Diageo (DEO, $132.69), the world's largest maker of branded premium spirits, saw a similar trend in March 2009. Its U.S. business improved despite the country being in the midst of a recession.
"We see growth continuing even in this difficult environment and expect industry growth staying in the range of 0-1 percent for sales volumes," Ivan Menezes, Diageo's head of its North American operations and current CEO, told Reuters in 2009. "The consumer shift is toward strong brands with strong credentials and strong heritage."
Diageo - whose brands include Johnnie Walker, Crown Royal, Smirnoff, Captain Morgan and Guinness - has performed in line with the market so far in the downturn. But if liquor sales remain strong, Diageo's stock should pull away.
Philip Morris International
Market value: $117.5 billion
Dividend yield: 6.2%
Analysts' opinion: 13 Strong Buy, 1 Buy, 5 Hold, 0 Sell, 0 Strong Sell
While we're on the subject of "sin stocks," Philip Morris International (PM, $75.44) did just fine during the Great Recession. In fact, that's when its stock started trading: Altria (MO) spun off its international business on March 27, 2008. Shareholders got one new share of PM for every share of MO they owned. Philip Morris' shares traded roughly flat between then and the end of the bear market, versus a 20%-plus loss for the S&P 500.
Philip Morris - and most other major cigarette companies, for that matter - benefited from increased sales during the Great Recession.
"The sales records of these tobacco companies demonstrate that smokers not only continued to smoke but also actually increased their cigarette intake during this period of economic difficulty, despite the harm to everyone caused by exposure to this habit," Teikyo University School of Medicine professors Peisen He and Eiji Yano wrote in their June 2009 article, "Tobacco companies are booming despite an economic depression."
Several factors have changed since then, of course. The world's attitudes toward smoking have changed considerably over the past decade. Not to mention, the coronavirus's effect on respiratory systems might make even diehard smokers a little wary at this time.
But Philip Morris has been working to counter the anti-smoking trend by replacing cigarettes with smoke-free products, such as its IQOS electronic device that heats tobacco instead of burning it. PM also claims IQOS reduces the levels of harmful chemicals ingested compared to cigarettes. The company says roughly 9.7 million people "have already stopped smoking and switched to IQOS."
In 2019, its heated tobacco shipment volume increased 44% over the previous year to 59.7 billion units. By 2021, it expects to reach its goal of 90 billion to 100 billion units. It's too early to tell how the coronavirus has affected Philip Morris' overall sales. But the company's pivot away from cigarettes should pay dividends in good times and bad.
Church & Dwight
Market value: $17.7 billion
Dividend yield: 1.3%
Analysts' opinion: 5 Strong Buy, 0 Buy, 11 Hold, 1 Sell, 2 Strong Sell
A study by Princeton researchers suggested that during the Great Recession, women between the ages of 20 and 24 had at least half a million fewer babies than they otherwise would have.
"Why are we so much less likely to reproduce when jobs are scarce? Money, mostly," The Atlantic's Olga Khazan wrote in September 2014. "Derek Thompson has previously written how the recession was like a big pause button on the lives of Millennials."
"It costs a quarter of a million dollars to raise a child, so laid-off couples might have been extra-scrupulous with their birth control between 2008 and 2011."
It just so happens that household and personal products company Church & Dwight (CHD, $72.00) makes Trojan condoms, the leading condom manufacturer in the U.S. with about 70% market share.
However, Trojan isn't Church & Dwight's only power brand. It has 11 other major brands that capture significant market share in their respective categories and collectively generate 80% of the company's overall revenues. They include Arm & Hammer baking soda, OxyClean laundry stain remover, First Response pregnancy tests, Orajel oral care, Waterpik power flossers, and Spinbrush power toothbrushes.
Church & Dwight actually improved its earnings per share between 2007 and 2009 by consumers with value pricing at a time when they could really use a break. In good times and bad, people always like a good deal. CHD is hardly cheap at almost 4 times sales, but it's a consistent performer, and that makes it one of the best stocks to invest in during a recession.
Market value: $35.8 billion
Dividend yield: 3.3%
Analysts' opinion: 5 Strong Buy, 0 Buy, 15 Hold, 0 Sell, 1 Strong Sell
Like many consumer staples companies in a recession, General Mills (GIS, $59.05) tends to benefit from people not going out as much to eat. General Mills - which is responsible for numerous big brands including Cheerios, Pillsbury, Totino's, Betty Crocker, Yoplait and Annie's Homegrown - did just fine during the Great Recession.
"We're continuing to see strong consumer demand for our products in markets around the world," former CEO Ken Powell said in the company's fiscal Q2 2009 release, issued in December 2008. "Our segment operating profit margin held steady despite higher input costs and the strong double-digit increase in consumer marketing to support our brands. Performance through the first half of 2009 has us solidly on track to deliver strong sales and earnings growth for the year."
In fact, Powell raised the company's earnings guidance for 2009 by 4 cents per share to $3.87. It finished fiscal 2009 with $3.98 in EPS, 11 cents higher than its guidance for the year.
Now, as we've entered another recession, current CEO Jeff Harmening is quite optimistic about its chances.
"It's been so long since we had a recession and especially here in the U.S. But certainly, during that time, people tend to eat in more, and General Mills did quite well," Harmening said during the company's March earnings call. "But that was a decade ago. We'll see how it plays out this time."
Because of increased demand for its cereals, frozen products and pet foods during the coronavirus, General Mills expects its 2020 EPS to increase by 6% to 8% in the current fiscal year - much higher than its previous projection of 3% to 5%.
Market value: $136.1 billion
Dividend yield: 3.5%
Analysts' opinion: 4 Strong Buy, 2 Buy, 5 Hold, 0 Sell, 1 Strong Sell
Unilever (UL, $52.01) reported its fiscal 2019 results at the end of January. The global consumer staples company - whose brands include Dove soap, Hellmann's condiments, Axe personal care products and Breyers ice cream - grew revenues by 2.9%. The Home Care operating segment, which includes brands such as Cif and Sun, led that growth with a 6.1% bump in sales. Free cash flow swelled by 13% to 6.1 billion euros.
Unilever has focused on global brands it believes can be juiced for even more sales. As a result, it has undertaken a strategic review of its tea business, which could be sold in 2020.
Paul Polman, who was CEO of Unilever during the Great Recession, found the company's business ideally suited to fight off a recession.
"Consumers postpone buying cars, televisions and that frees up a lot of money to spend on everyday needs. We don't see personal care or food markets go down substantially," Polman said in March 2009.
Between 2008 and 2010, Unilever's sales grew from 22.1 billion euros to 23.58 billion euros, though operating profits did fall by 13.5% over that time. Still, as we move into a recession, it's likely that consumer discretionary spending will slow substantially. Some of that should be redirected to Unilever's products.
Market value: $24.5 billion
Dividend yield: 2.2%
Analysts' opinion: 3 Strong Buy, 0 Buy, 7 Hold, 1 Sell, 4 Strong Sell
Clorox (CLX, $195.64) has been among the best stocks to ride out the coronavirus outbreak, would have to be it. The company has produced a nearly 19% total return since Feb. 19 while the index has retreated by almost as much. Pardon the pun, but it's wiping the floor with most other U.S.-listed stocks.
That's not surprising given that Clorox's disinfectant wipes and bleach have been flying off the shelves. The company controls approximately 50% of the market for disinfectant wipes. In times of crisis, consumers tend to stick with brand names they know, opting to pass on cheaper, store brands.
"Based on conversations with retail buyers, we estimate COVID-19 related demand could boost baseline disinfectant category trends by 3-5x in the next few months as retailers work to rebuild inventory and stay in stock," UBS analyst Steven Strycula wrote in mid-March.
Further, according to Deutsche Bank data going back to the 1990s, consumer staples stocks such as Clorox tend to outperform the S&P 500 in recessions and other difficult periods.
Between 2007 and 2009, Clorox's earnings expanded by 24%. The company also treated income investors to a 35% bump in its annual dividend payments (distributed quarterly) over that time. It has since extended that streak to 42 consecutive years, including a 10% raise last year, putting it among the Dividend Aristocrats.
"Rewarding our stockholders has always been a priority," CEO Benno Dorer said in a May 20 press release. "This double-digit increase in our dividend is on top of last year's 14% increase. It represents an ongoing effort to put our strong cash flow generation to work, which emphasizes investing in long-term business growth and returning excess cash to our stockholders."
Considering business is stronger than it has been in some time, investors can expect increase No. 43 later this year.
Procter & Gamble
Market value: $299.3 billion
Dividend yield: 2.6%
Analysts' opinion: 12 Strong Buy, 1 Buy, 8 Hold, 0 Sell, 0 Strong Sell
If you look through fellow Aristocrat Procter & Gamble's (PG, $121.22) brand directory, you'll see that many of its products aren't going to lose sales momentum during a recession. They're products we use every day: Oral B toothbrushes, Ivory soap, Crest toothpaste, Head & Shoulders shampoo. The list goes on and on.
P&G pointed out in a February presentation that during the first half of its 2020 fiscal year, all eight of its operating segments posted positive organic sales growth. Its Skin & Personal Care and Personal Health Care businesses led the charge with 13% and 11% growth, respectively. Those include brands such as Gillette, Ivory, Pepto Bismol and Vicks.
In the first half of 2020, Procter & Gamble expected organic sales growth of 3% to 4% and core earnings per share growth of 4% to 8%. It delivered 6% and 18% growth, respectively, far in excess of its projections.
As people stay home during the coronavirus, when they do go out to the grocery store and pharmacy, you can be sure they'll buy numerous P&G products. And the company in general is in a good position, according to P&G CFO Jon Moeller.
"We are better positioned for several reasons to deal with (an economic) downturn than we were in 2007," Moeller told CNBC in October. "We'll use tools like value messaging, pack sizes, performance messaging to ensure that if there is a downturn, we are in the best position for a consumer in a pinch. ... We don't see consumers stopping laundry or shampooing or conditioning or feminine protection during a recession."
Procter & Gamble further instilled confidence by stating in mid-April that it would hike its dividend for the 64th consecutive year, doling out a 6% increase. At a time when some companies are announcing dividend cuts or suspensions, you can count on P&G's 2.6% yield.
Market value: $26.2 billion
Dividend yield: 1.9%
Analysts' opinion: 1 Strong Buy, 0 Buy, 8 Hold, 2 Sell, 1 Strong Sell
In these difficult times, it's good to see companies stepping up for their employees.
Hormel (HRL, $48.66) announced in late March that it would pay out more than $4 million in special cash bonuses to all full- and part-time workers that man the production lines at its various plants, ensuring that Americans don't go hungry.
"As a global branded food company, we play a critical role in providing safe, high-quality food during this unprecedented time," CEO Jim Snee said. "Our incredible team of more than 13,000 plant professionals is the backbone of our company and this special bonus is one way we can continue to thank them for how they have risen to the challenge and continue to produce food with a sense of purpose and pride."
As part of the bonus program, in which each full-time worker gets a $300 bonus and every part-time worker gets $150, also has extended paid sick leave for any employees who can't make it to work as a result of the virus.
During the Great Recession, Hormel's results were mixed, as consumers balked at some of its more upscale products.
"We are seeing some ups and downs in terms of demand for our products - very strong demand for the canned side of the franchise, Spam luncheon meat, Hormel chili, Dinty Moore beef stew," former Hormel CEO Jeffrey Ettinger said in March 2009.
In February, before the coronavirus took hold, Hormel's guidance for fiscal 2020 were net sales of at least $9.5 billion and EPS of $1.69. Refrigerated Products, its Jennie-O Turkey Store and Grocery Products (such as Spam) were expected to lead the way.
Hormel is one of the best stocks to invest in during a recession simply because it shouldn't get slaughtered. In fact, it actually has put together a small gain in this bear market while many blue-chip stocks are sitting on double-digit declines.
Market value: $137.0 billion
Dividend yield: 0.8%
Analysts' opinion: 16 Strong Buy, 2 Buy, 11 Hold, 2 Sell, 0 Strong Sell
During the last recession, analysts worried about how many members Costco (COST, $310.27) would be able to retain. It did better than expected. In 2007, Costco boasted 27,500 total primary cardholders. Two years later, Costco finished fiscal 2009 with 30,600 primary cardholders - an 11.3% gain.
"There were expectations that people would be willing to let their memberships expire, but the numbers have held up quite well," Morningstar retail analyst R.J. Hottovy said in January 2010.
As America makes its way through the coronavirus recession, Costco remains one of the better-positioned retailers during and after the crisis. In the five weeks ended April 5, Costco saw its same-store sales increase a whopping 12.3%. Analysts actually expected them to be as high as 24.1% as members hoarded everything from toilet paper to orange juice. However, it seems that once the social distancing rules kicked in for much of the country in mid-March, traffic to its stores slowed. Despite this, Costco's foot traffic for all of March increased by 5.3%.
One thing that's going to help Costco as the recession wears on wasn't even a big contributor back in the Great Recession: online sales.
In the second quarter ended Feb. 16, Costco's online same-store sales increased by 28% over the same period a year earlier. In the month of March, they improved by a whopping 48.3%. Costco is projected to generate $8.3 billion in e-commerce sales in 2020, versus annual online revenues of just $1 billion in 2007.
Market value: $24.9 billion
Dividend yield: 2.0%
Analysts' opinion: 10 Strong Buy, 1 Buy, 12 Hold, 0 Sell, 1 Strong Sell
Business is booming at Kroger (KR, $32.03), the nation's largest grocery store chain with more than 460,000 workers, thanks to its role as an "essential" business and a food provider. The company says its same-store sales jumped 30% year-over-year in March, spiking in the middle of the month because of customer hoarding.
"The demand has been broad based across grocery and fresh departments," Kroger said in a release. "It is too early to speculate what will emerge as the 'new normal' in food consumption at home or what the impact on sales will be in future periods."
Kroger now expects its first-quarter same-store sales (typically revenues generated at stores open longer than 12 months) to be higher than originally expected.
In the Great Recession, Kroger reported healthy earnings as a result of changes in customer routines such as eating out less, entertaining at home and buying more private-label store-branded items. Equally important, Kroger did well against the mighty Walmart.
"In 33 markets where the Supercenters have a third-place market share in the grocery sector, and Kroger is either number one or two, Kroger's share of grocery sales in those areas rose 8.6 percent year over year during the fourth-quarter period," CBS reported on March 12, 2009.
If the last recession is any indication, Kroger will benefit. So far, it's sprinting past the market with an 8% gain since Feb. 19.
Market value: $132.2 billion
Dividend yield: 2.8%
Analysts' opinion: 22 Strong Buy, 3 Buy, 8 Hold, 0 Sell, 0 Strong Sell
Every business that lives through a recession tends to survive through innovation and moxie. In the case of McDonald's (MCD, $177.84), which is so big that it likely doesn't fear much, we're likely to see a few new tricks out of a company that has always been well ahead of the curve.
McDonald's opened almost 600 stores in 2008. Further, its 2008 sales were higher than both 2006 and 2007. Between December 2007 and June 2009, MCD stock delivered a total return of 2.5%, considerably higher than the 35% loss in the S&P 500.
Americans traded down in the last recession. McDonald's was ideally positioned to benefit from this trend.
"In a recession, people eat out less and at home more frequently. And when they eat out, they eat at cheaper places," Slate contributor Daniel Gross wrote in August 2009. "McDonald's is so cheap, efficient, pervasive and convenient that it was a viable alternative to casual restaurants like Ruby Tuesday and to cooking at home. Investors, like diners, angled toward McDonald's and away from Ruby Tuesday during the recession."
As this current likely recession continues, analysts believe defensive plays like McDonald's make sense.
"We believe MCD is well-positioned to perform strongly on a relative basis in this scenario (recession) when considering global comps for McDonald's during 2008-2009 were a recession-resilient +5.4% (best-performing brand in our coverage universe)," Baird Equity Research analysts wrote in an April note to clients.
The Baird analysts argue that McDonald's projected cash balance at the end of March will be almost $7 billion. With further relief from the economic stimulus package, the Golden Arches is more than prepared to fight through a recession.
Market value: $12.1 billion
Dividend yield: 1.3%
Analysts' opinion: 1 Strong Buy, 0 Buy, 3 Hold, 0 Sell, 0 Strong Sell
Kiplinger listed Rollins (ROL, $36.85) as one of 15 recession-resistant stocks to own in October. So far, so good. The stock is off just 7% through the bear market, outperforming the S&P 500 by a little more than 10 percentage points.
Back in 2008, Rollins grew its various pest control businesses, including the Orkin brand, by a healthy 3%. In good times and bad, individuals and businesses will pay for pest removal.
Rollins rolled into 2020 with momentum. Its 2019 sales grew by 10.6% to $2.02 billion, and it increased its dividend or the 18th consecutive year. Then in late March, Rollins announced that it was launching Orkin VitalClean, which provides customers with a disinfectant for suppressing a wide range of germs including those that cause the coronavirus, swine flu and avian flu. It's especially useful for removing bacteria and viruses from hard, non-porous surfaces such as stainless steel.
This service could be a hit with consumers in the current environment.
As for Rollins' growth strategy: It's a combination of organic revenue growth from its 2.4 million residential and commercial customers along with acquisitions of other pest control businesses in the U.S. and around the world. As the coronavirus hurts other businesses in the industry, it's likely that Rollins will be open to further acquisitions.
Moreover, with just $561 million in contractual obligations, $94 million in cash and $133 million available under its revolving credit and term loan facilities, Rollins has plenty of liquidity to get it through this recession.
One last wild card that puts Rollins among the best stocks to invest in during this recession? The Rollins family owns 53.2% of the company's shares. Family-controlled businesses tend to believe in long-term planning, and that bodes well for survivability.
Service Corporation International
Market value: $6.9 billion
Dividend yield: 2.0%
Analysts' opinion: 2 Strong Buy, 1 Buy, 0 Hold, 0 Sell, 0 Strong Sell
So many people have succumbed to COVID-19 in 2020, it's hard not to think of funerals and the death care industry. The thousands of people who've died from the virus have either made pre-death funeral arrangements or their loved ones are making them. In New York City, the epicenter of the coronavirus pandemic in the U.S., funeral homes are overwhelmed by the number of clients they're seeing as a result of this crisis.
Service Corporation International (SCI, $38.21), an owner of more than 1,900 funeral homes and cemeteries in 44 states and eight Canadian provinces, ought to have momentum as it attempts to navigate the recession.
In June 2019, as recession talk was heating up, Bank of America analyst Joanna Gajuk suggested that companies like Service Corp only suffered a "slight pullback" in their business during the Great Recession. The reasoning? Roughly 75% of funeral home clients who pay for funeral arrangements ahead of time pay a lump sum. In addition, 40% to 50% pay ahead of time for cemetery plots, also in one lump sum.
In 2019, Service Corp finished the year with free cash flow of $390 million and a free cash flow margin of 12.1%. It expects to grow sales by 8% to 12% in 2020, filtering down to earnings of $1.96 to $2.16 a share.
Curiously, SCI shares are among the few recession stocks on this list that are underperforming the index during this downturn. It's too early to know how the coronavirus will affect Service Corp's business, but the two analysts that have sounded off over the past month still consider SCI a buy. Both have price targets implying more than 20% upside from current prices.
Market value: $2.6 billion
Dividend yield: 7.7%
Analysts' opinion: 2 Strong Buy, 0 Buy, 6 Hold, 0 Sell, 1 Strong Sell
As the proverb goes, only two things in life are certain: death and taxes.
According to the American Institute of Certified Public Accountants, nearly 60% of taxpayers use a tax practitioner to prepare their annual tax return. H&R Block (HRB, $13.52) happens to be one of the largest tax practitioners in the U.S., Canada and Australia.
Every year, the other 40% of Americans put themselves through the annual ritual of preparing their own taxes. In 2020, as the pandemic rages, those that have traditionally done their own taxes could decide to hand over their return to a professional to lessen the anxiety of self-preparation.
One service H&R Block provides that should benefit from the coronavirus is Tax Pro Go, which allows clients to upload their documents using their smartphone. The H&R Block tax pro does the rest. And if you still want to prepare your own return, HRB offers the online tools to help you do that.
H&R Block's results might be spread out more than usual this year, however. The IRS has extended this year's federal filing deadline to July 15, and most states have followed suit. But they still want to hear from taxpayers, recession or not.
HRB lost about 14 percentage points less than the S&P 500 during the Great Recession, and in a choppy fashion that allowed many investors to exit with gains. In H&R Block's 2009 fiscal year ended April 30, 2009, the company's sales were flat at $4.08 billion, while its operating income actually increased by 15% to $513.06 million.
What will happen in this recession is very much up in the air. What we do know is that H&R Block's strongest quarter of the year in 2020 won't look how it normally does, as Americans spread out their filing duties into the summer.
Copyright 2020 The Kiplinger Washington Editors