7 Recession-Proof Stocks to Buy in October
Let me start by answering the objection that is probably posed by many readers. Are there really any recession proof stocks? Well, recessions pull almost every stock down, so it’s very hard to find stocks that are completely recession proof. But there are stocks that perform quite well during economic downturns.
And investors should be looking to buy these stocks now. Because depending on everyone’s perspective, we are either rapidly heading into a recession or we are already there.
The Fed raised its benchmark interest rate target by 75 basis points on September 21. The hike was the third consecutive 75 basis point hike by the central bank, and the benchmark rate will likely rise above 4.25%. Previous attempts by the Fed to reduce inflation have had mixed results, prompting it to raise interest rates further.
However, this decision could trigger further major declines in the stock market and a deep recession. As a result, investors should look to buy near-recession-proof stocks in October.
|NAPA||Duck horn wallet||$14.11|
|JNJ||Johnson & Johnson||$163.20|
Duckhorn Wallet (NAPA)
I never wrote about Duck horn wallet (NYSE:NAPA) before. However, I think it is interesting for several reasons. First, the data suggests that alcohol consumption increases during recessions. A study shows that during the 2008-2009 recession, total alcohol consumption increased even as alcohol abstinence rates increased. In other words, the precedents suggest that those who drink tend to drink significantly more during a recession.
Additionally, wine emerges as an attractive alternative investment alongside other luxury items such as fine art. The idea behind investing in luxury goods during recessions is that their demand does not drop much during economic downturns. Duckhorn Portfolio offers wines that cost between $50 and $200 a bottle. Its wines are not extremely expensive, but they are definitely luxuries.
Duckhorn Portfolio’s most recent results indicate that the company is relatively mature, as its sales rose only 1.3% year-over-year to $91.6 million. This increase is not particularly exciting for investors. However, it is a safe company with a solid business. For this reason, in addition to its status as a seller of a luxury good, I would consider investing in NAPA stocks.
O’Reilly Automotive (ORLY)
It’s pretty obvious why O’Reilly Automotive (NASDAQ:ORLY), which sells auto parts, should do well in a recession. That’s because, during the current economic downturn, Americans are keeping their vehicles longer than they ever have.
Last May, it was reported that the average age of vehicles in the United States had reached 12.2 years. It was a new record. The older a vehicle gets, the more repairs it requires. O’Reilly Automotive should therefore benefit from strong demand momentum.
Additionally, Americans are increasingly seeing their ability to save shrink as inflation continues to pinch consumers. This increases the chances that they will hang on to older vehicles longer, increasing the demand for O’Reilly Automotive products.
In late July, O’Reilly Automotive provided guidance for a 3% to 5% increase in same-store sales in 2022. Fortunately for investors, analysts’ average price target still indicates ORLY stock may further increase further.
Let’s start with McDonald’s (NYSE:MCD) fundamentals. McDonald’s is growing at an impressive rate, especially for a company of its size. In its most recent quarter, the company’s global comparable sales increased 9.7% year-over-year, while its US comparable sales climbed 3.7% in the quarter. same period.
These fundamentals suggest that McDonald’s remains on solid footing. This is a positive point for investors. But investors also need to consider McDonald’s trajectory during a recession. Fortunately, it is one of the most well-known defensive values. MCD stock held its value during the 2008-2009 recession, trading around $58 for the duration.
And over the past ten years, it has performed very well, delivering average annual returns of 14% to investors, not including its dividend. This dividend is extremely safe, having last been reduced in 1977.
Consider MCD stock for its performance, its inexpensive menu offerings that should do well as the purse strings tighten, and its dividend that’s pretty much guaranteed.
Kimberly Clark (KMB)
Investors should seriously consider Kimberly Clark (NYSE:KMB) actions to allay some of their recession fears. Let’s start with a simple argument that draws on price precedents for Kimberly-Clark.
Over the past three years, Kimberly-Clark shares have traded in a range around the $130 level. It has risen, but for the most part investors can expect it to stay at or above that $130 range. In fact, the analysts’ average price target for the stock sits at $131.44.
The problem for Kimberly-Clark is common to most companies today: higher costs. In fact, the company said its costs increased by $405 million in the last reported quarter.
This worries some investors and evidenced by the average rating of the KMB share which is a “take”. But at the same time, Kimberly-Clark also beat analysts’ average EPS estimates in the quarter.
Apparently, the company manages these higher costs effectively. I would buy KMB shares on this notion and because it includes a quarterly dividend of $1.16. It is a well-known defensive stock within a consumer staples sector that has historically benefited from inelastic demand. For these reasons, KMB’s actions are worth considering.
Johnson & Johnson (JNJ)
Reasons to invest in Johnson & Johnson (NYSE:JNJ) are simple. In this case, as in others, simplicity is best. The healthcare sector is notorious for its recessionary forces. Health care, as a whole, has tended to outperform in past recessions. This will most likely be true this time around as well.
In fact, there is already plenty of evidence to support this notion. Just look at JNJ stock price in 2022. It has barely slipped, falling a miniscule 4.6% so far. Analysts, on average, think it can climb about $20 above its current price. Like all so-called dividend kings – companies that have increased their dividend for 50 years or more – also consider JNJ stocks for the income they provide.
Finally, consider JNJ stocks because the company, like all successful businesses, invests cautiously. This truth is evidenced by its return on invested capital of 17.38%. This return on investment far exceeds the company’s weighted average cost of capital of 5.83%. When ROIC exceeds WACC, value is created for shareholders.
This is why JNJ remains stable in times of instability and how JNJ has provided investors with a growing dividend since 1963.
Synopsis (NASDAQ:SNPS)stock is a semiconductor company heavily invested in the evolution to the Internet of Things. It markets itself as a supplier of high-tech chips that power everything from autonomous vehicles to machine learning, the Internet of Things, and more.
Investors should be interested in SNPS stock because of its fundamentals. In its latest reported quarter, the company posted revenue of $1.248 billion, up from $1.057 billion in the same period a year earlier. Synopsys also provided guidance for similar revenue in the current quarter. It expects sales of between $5.06 billion and $5.09 billion for the full year.
Semiconductor stocks have not performed well in 2022. PHLX Semiconductor Index declined by nearly 40% in 2022. Synopsys looks like an outlier in the industry. as its revenues and net income increased in the first half of 2022 and in the second quarter.
As a result, its shares are down just 14% this year. It is riskier than stocks in other sectors, but SNPS stock has the potential to be a smart stock that performs well in recessionary times.
Wall Street analysts have, on average, a “buy” rating on stocks. This alone is a strong signal, as the technology and semiconductor industries have been rattled by rapid changes in monetary policy.
Ulta Beauty (ULTA)
The case for investing in Ultimate beauty (NYSE:ULTA) stock is based on the idea that the demand for its products is relatively inelastic. Past recessions have provided data suggesting that demand for cosmetics remains relatively strong during recessions. Specifically, the data shows that during recessions, women engage in discretionary purchases that aren’t too extravagant. Among these purchases are lipstick and other cosmetics. this phenomenon has been called the “lipstick effect”.
This notion seems to have been exemplified by Ulta Beauty’s recent earnings report. If you’re like me and believe we’re currently in a recession, then the fact that Ulta’s sales have gone from $2 billion to $2.3 billion is a good omen. This suggests that its beauty products are working well, even as consumers continue to grow increasingly tense.
Moreover, Ulta Beauty’s revenue has increased a lot in recent years. For roughly the first even months of 2020, the company saw $2.4 billion in sales. In the same period, two years later, the company had revenue of $4.64 billion.
It is clear that consumers appreciate its product offerings. And the data suggests cosmetics are enjoying inelastic demand, so buying ULTA stock is a smart move.
At the date of publication, Alex Sirois did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.