No company is immune from the effects of a market downturn. That fact means investors have to be willing to accept periods of declines in their portfolios.
But high-quality businesses tend to emerge from recessions with even stronger market positions. Many stocks also have a history of performing well even when wages are declining and consumer spending is faltering.
With those attractive characteristics in mind, let's take a look at a few companies that could strengthen your portfolio in advance of the next market downturn.
1. Procter & Gamble
People cut back on all types of spending during recessions, but they tend to stay loyal to brands they love while shelling out for everyday necessities like home cleaning supplies and personal hygiene products.
That's where Procter & Gamble (PG 2.04%) comes in. The consumer staples giant has been selling items that people use on a daily basis for over 100 years and today maintains leadership positions in dozens of core niches such as diapers, paper towels, and laundry detergent.
P&G's sales growth was sluggish for almost five years but is now finally on the upswing following management's portfolio reboot and aggressive restructuring moves. These efforts protected earnings growth in 2013 through 2018 and have positioned the company for significant profit gains now that its market share is rising again.
New car sales are so sensitive to recessions that the industry is among the first that people think of when they're imagining so-called cyclical businesses. But the auto parts niche tends to move in the opposite direction of new automotive sales. That makes sense given that as people forego new car purchases, they spend more on maintaining their older vehicles.
In each of the last eight years, the average age of cars on the road has surpassed 11, and that's been good for AutoZone's (AZO 0.94%) business. In 2018, the auto parts and servicing giant notched a 21% spike in net income to a record $1.6 billion. Sales growth was robust at 6% in each of the last two fiscal years.
CEO Bill Rhodes and his management team are targeting more growth in the fiscal year ahead, whether or not a recession hits the U.S. The company's elevated spending in recent years in areas like e-commerce, the supply chain, and employees has laid a strong foundation for AutoZone to keep its impressive streak of sales growth alive.
When you're the industry leader, you always have the most to lose as rivals fight to chip away at your market share. McDonald's (MCD 0.63%) faces constant challenges from peers competing in niches ranging from fast food to fast casual to full-service dining. But the burger specialist seems to have a knack for navigating those threats, even when they include fundamental challenges to its ingredients and preparation methods, as seen in the recent rise of fast-casual dining.
Investors might like the chain's economic resilience even more than that competitive strength, though. McDonald's menu includes value-priced options but also plenty of consumer indulgences. This range helps the company straddle the line between consumer staple and consumer discretionary so that it can emphasize treats during good times and value during recessions. Mickey D's has relied on that strength to keep earnings rising over the last five decades, and it is well positioned to keep that momentum going through major industry trends like the shift toward home delivery in 2020 and beyond.