Please ensure Javascript is enabled for purposes of website accessibility

3 Top Stocks to Recession-Proof Your Portfolio

By Donna Fuscaldo - Updated Oct 9, 2019 at 3:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Nobody knows for sure if and when a recession will come, but investors need to prepare. These three stocks can provide a little insulation when the economy goes south.

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.

A red down arrow crashing into concrete.

IMAGE SOURCE: GETTY IMAGES.

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. 

Be prepared

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. 

Donna Fuscaldo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Teladoc Health. The Motley Fool has the following options: short January 2020 $180 calls on Costco Wholesale and long January 2020 $115 calls on Costco Wholesale. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$260.06 (1.27%) $3.26
Dollar General Corporation Stock Quote
Dollar General Corporation
DG
$253.96 (-0.53%) $-1.34
Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
$35.41 (-8.71%) $-3.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.