With the U.S. economy in the late innings of a growth cycle, a tariff war still raging between the U.S. and China, and an inverted yield curve spooking the markets, investors are bracing for a recession.
Nobody knows when it will come or how bad it will be, but there are signs pointing to an inevitable slowdown, which means it's time for investors to prepare -- not by moving all their money into cash and hunkering down, but by choosing stocks for their portfolio that can withstand even a protracted downturn.
Though it may be easier said than done, there are industries that hold up well in slowing economic times. They usually provide low-cost products and services or items consumers need in good times and bad. They may not be red-hot growth stocks, but they do provide calm in what may be a tumultuous time. With that in mind, here's a look at three top stocks to recession-proof your portfolio.
1. Dollar General: discounts shine in recessionary periods
The retail landscape has been decimated by store closings and bankruptcies over the past few years, but some, namely Dollar General (DG -0.53%), have been rare diamonds in the rough. For nearly three decades, Goodlettsville, Tennessee-based Dollar General has reported same-store sales growth. It's well on its way to opening 975 new stores in 2019 alone and is remodeling 1,000 more. For its second quarter, which Dollar General reported in late August, it surpassed Wall Street's expectations, lodging a 4% increase in same-store sales.
What makes Dollar General a smart play in a recessionary environment is its low prices. When consumers are short on cash, they look for deals. That's something they find a lot of at Dollar General. It doesn't hurt that its shelves are stocked with necessities consumers need even when times are tough. Sure, they may forgo a pricey pair of sneakers or the latest consumer electronics device, but they still need staples like soap, toothpaste, and napkins.
What makes it even more attractive in a downturn is that consumers can save without paying a lot upfront. In order to get a deal at Costco Wholesale or BJ's Wholesale Club, you have to buy in bulk. At Dollar General, consumers can purchase small quantities, which is a big differentiator when times aren't great.
2. Teladoc: helping consumers save money on doctor visits
Healthcare stocks have long been a sector that tends to hold up during a recession. People need doctors and medicine whether the economy is expanding or contracting. With the cost of healthcare rising, employers and consumers are looking for low-cost alternatives and that's where Teladoc Health (TDOC -8.71%) comes in. The Purchase, New York-based company enables consumers to conduct virtual doctor visits for a flat fee of $40. Patients save money and don't have to waste time waiting in a doctor's office. Teladoc isn't the only player in the telemedicine market, but it is among the leaders.
It's also enjoying double-digit revenue growth to the tune of 38% in its second quarter. The total visits with its virtual doctors are also rising, up 70% to 908,000 in the second quarter.
In a recessionary environment where unemployment rises, consumers and companies will want to save money on everything, including medical care, which bodes well for Teledoc and its investors.
3. McDonald's: the granddaddy of fast food
Americans have a love affair with fast food. And for good reasons: It's cheap, quick, and easy, even if it's not always that healthy. In a recession, budget-conscious consumers tend to love it more. What company is more synonymous with fast food than McDonald's (MCD 1.27%)? With 14,428 stores across America and more than 23,000 located outside the U.S., this Chicago-based fast-food chain operator is a top pick to recession-proof your portfolio.
It has been integrating more and more technological advances into its stores, including its menu board, and these investments are paying off. In its second-quarter earnings, the company reported that its digital drive-through menus (which also make food suggestions) have raised the average order amount. For the second quarter, it posted a 6.5% jump in comparable same-store sales.
There's also talk McDonald's could launch a loyalty card, which may boost sales even more, particularly during a slowdown and when consumers are looking to save money.
While nobody knows when a recession will hit, it's important for investors to be prepared. Adding a little recession coverage to your portfolio is a way to achieve that. Dollar General, Teladoc, and McDonald's all fit the bill.