The present market climate is awash with pessimism and uncertainty. Sky-high inflation levels, increasing interest rates, supply chain disruptions, and a crashing equity market; These conditions all point to a looming recession that many expect to be approaching. When the market officially enters into a recession mode, even the mightiest of stocks fall to their knees. History, however, tells us that, even in the worst of recessions, a number of stock categories thrive amidst the chaos. For investors that play their cards right, their portfolio can effectively become recession-proof, and continue to soar. To achieve this, one would need a thorough analysis of various industries, and their performance in market stress. Investors would also need to carry out an in-depth fundamental analysis of specific stocks to be considered. In this spirit, we have compiled a list of ideal stocks that ensure growth during a recession.
Recession Growth Stock #1: Comcast Corporation
The media and tech company Comcast Corporation (NASDAQ: CMCSA) is a great pick for resilient growth investment. The company has shown strong financial performance in the first quarter of 2022. With an EPS growth of 13% and revenue growth of 14%, Comcast is clearly proving to be profitable. Double-digit growth in both revenue and earnings is especially impressive in an economically difficult environment. This growth was in large part due to the nature of Comcast’s service segments. Advertising, business services, wireless communications, and broadband each saw stellar growth. This comes in continuation of the post-Covid digital transformation, which is likely to continue well through this bear market.
During a recession, CMCSA’s dividend aspect is also significantly advantageous to its shareholders. For the last 14 years, the company has been paying out dividends, maintaining a general growth trend. Just in January 2022, Comcast management had made the decision to up dividends from $1 to $1.08 per share. Although the dividend yield is 2.6 %, the stock is great to deliver stable income in a wider economic crunch. Its payout ratio of 30% is sufficiently sustainable and ensures most of the earnings are reinvested for further growth. The stock has all indicators of a stable recession growth stock.
Recession Growth Stock #2 Alexandria Real Estate Equities
Analysts typically state that REITs are a lifeline during a recession. For this reason, we feel that this list would be incomplete without the mention of a stellar REIT. Alexandria Real Estate Equities, Inc. (NYSE: ARE) is a REIT that owns and manages laboratory and life science offices. It also has a business segment that conducts venture capital funding for emerging biotech stars.
ARE’s Class-A properties are centered around the biotech clusters in Raleigh, San Diego, San Francisco, and Boston. The occupants of these office spaces are some of the leading pharmaceutical companies in the world. With its triple-net leases and annual rent appreciation, ARE operates a highly sustainable business model.
From a recession standpoint, there is no better REIT than ARE. REITs in general are good to hold on to during periods of economic turmoil. However, ARE in particular has some attractive points of strength. For one, dealing with the pharmaceutical industry gives it a considerable edge. This is mainly because demand for healthcare does not see a slowdown amid wider economic swings. Secondly, healthcare facilities and biotech offices are unlikely to be impacted by the remote working phenomenon. These characteristics make ARE extremely well defended against recessionary conditions. In addition to all these factors of robustness, the stock has maintained a 12-year growth streak for its dividend payments.
Recession Growth Stock #3: Colgate-Palmolive Company
Colgate-Palmolive Company (NYSE: CL) is among the largest consumer product companies in the world. What makes it a great pick for our list is its resilience during times of low investor confidence. The reason for this is that recessionary conditions cause non-essential and luxury industries to take a significant hit. The consumer staples sector, however, in which CL is the leader, significantly outperforms the wider market. This is indicated in its comparative performance since March 2022, against the S&P 500:
As the graph above shows, CL gained by almost 10% since March 2022. During the same time, the S&P 500 index had fallen by 14%. As the market realigns itself towards safer stocks, CL price is likely to continue its growth trend. Moreover, share value could continue its climb with Colgate’s share repurchase commitment. In the last 10 years, the company has bought back almost 10% of its outstanding shares.
Colgate-Palmolive is also great for one’s portfolio during a recession due to its dividend payout. It pays out as much as 75% of its earnings to its shareholders. In fact, it has been paying out dividends for the last 58 years. In the last 21 years, the company has stuck to its annual dividend increase policy without fail. For a recession, this aspect is extremely advantageous as investors are due a growing income stream.
Recession Growth Stock #4: Walmart Inc
When looking at past recessions, one player that seemingly consistently outperformed the market was Walmart Inc. (NYSE: WMT). Even in present circumstances, WMT is one of the best crisis stocks one can turn to during a recession.
Bears had always put forward the argument that Walmart would eventually crumble against the e-commerce threat. However, the results paint a picture of its dominant hold over its market, by dynamically adapting to customer preferences. WMT’s two-year e-commerce growth was reported at 38% on a stack basis to the first quarter of fiscal 2023. For a big-box retailer such as Walmart, this dynamic flexibility is a major green flag for its financial sustainability. Its scale of operations as well as the position it occupies in the retail market is something it has been capitalizing upon. These features are what have contributed to its thriving during the prior two recessions.
Walmart’s investments in optimizing its business model make it ready to excel even in the case of an impending recession. In addition to e-commerce, Walmart has been heavily moving toward automation and robotics to eliminate inefficiencies at the distribution level. Recently, the company partnered with telematics provider, Platform Science to enhance delivery coordination through the NTransit Software. All of these factors collectively make WMT an ideal recession growth stock to hold during these times of uncertainty.
Recession Growth Stock #5: Synopsys
When preparing for the oncoming inflation, there is no better bet worth considering than the semiconductor industry. The global management consultancy, McKinsey and Company described the present period as being “the semi-conductor decade”. They further project it to grow to a trillion-dollar value by 2030. One company that seems to be incredibly profiting off this immense opportunity is Synopsys, Inc. (NASDAQ: SNPS). Synopsys, through semiconductor technology, aims to drive forward digital advancements in its software ecosystem.
In the first quarter of 2022, SNPS reeled in impressive revenue growth of above 10% since the prior quarter. Its GAAP EPS (diluted) jumped by an impressive 56.7% to $1.99. It managed to achieve these impressive feats despite the wider macroeconomic stresses of early 2021.
Synopsys is ideal to hold during a recession because it is an innovator. This in large part explains its earnings growth. Unlike competitors, it achieved technical differentiation in its products, along with AI-driven apps and tools. The company further aims to strengthen its market leadership in these dynamic domains. Its recent acquisition of WhiteHat Security alludes to this commitment, allowing it to make further breakthroughs in security SaaS areas. SNPS has all the markings of a resilient stock that will push upwards despite wider economic challenges.
Making an investment call is no easy task, even in economically stable times. With the anticipation of an upcoming recession, the world of investment is wrought with even greater challenges. However, despite this gloomy outlook, there are a number of stocks that pose ideal investment opportunities for times of recession. Each of the stocks presented above is a great choice in their own respect. They are well suited to ensure growth throughout the expected recession timeline.