As the longest bull-market run fades farther and farther into the rearview mirror, plenty of investors are looking to the future with caution-stricken eyes. With unemployment claims skyrocketing to a record 3.3 million last week and COVID-19 cases continuing to soar, anxiety about a downturn in the economy is exerting a forceful grip on large swathes of the nation. In fact, some pundits are already claiming that we've entered a recession. 

Investors with long-term track records of success know that the best courses of action, in both the best and worst of economic times, is to continue investing. Nonetheless, for investors who are losing sleep due to the prospect of a severe economic downturn, stocks that represent a lesser degree of risk and can withstand market volatility -- such as American States Water Company (NYSE:AWR), New Oriental Education (NYSE:EDU), and Royal Gold (NASDAQ:RGLD) -- are good options right now.

A dollar bill beside a downward-trending chart

Image source: Getty Images.

Test the waters with this water utility

When investors look for conservative stock opportunities, one of the first places they often look is utility stocks. Consumer spending may decline during a recession, but one area where people won't be looking to save money is water usage. For this reason, a stock such as American States Water Company is an ideal consideration. The parent company of Golden State Water Company and American States Utility Services, this utility provides water services to more than one million people across nine states.

Receiving an A+ credit rating and stable outlook from Standard & Poor's Global Ratings, American States Water and its investment-grade balance sheet should reassure investors that this company is in sound financial health and well-prepared to weather the demands that may be placed upon it during a recession. Moreover, American States Water Company's strong financial footing becomes even more apparent when comparing the company to its peers: Middlesex Water Company, SJW Group, and York Water Company.

AWR Financial Debt To EBITDA (Annual) Chart

AWR Financial Debt To EBITDA (Annual) data by YCharts.

Besides adopting the most conservative approach to leverage among its peers, as evidenced by a financial debt-to-EBITDA ratio of 2.7, America States Water is well-prepared to service its debt as it maintains an interest coverage ratio of 6.3. And with American States Water's stock offering a 1.5%-yielding dividend, investors can even earn a little extra income.

Trouble at home doesn't mean trouble abroad

Although a Chinese company focused on education may not be a traditional consideration for fortifying a portfolio, there are plenty of investors who have profited handsomely from choosing to eschew conventional wisdom. In all likelihood, New Oriental Education, the self-proclaimed "largest provider of private educational services in China," would most likely not be too negatively affected if the U.S. economy descends into a recession. The company offers educational programs to a wide range of students, from those as young as three years old to those 18 and older, who are seeking career training or vocational training.

Enrolling more than 51 million students since its founding in 1993, New Oriental Education, with its network of 97 schools, 1,304 learning centers, and more than 36,000 teachers in 85 cities, has proven to be knowledgeable at making education a profitable endeavor.

EDU Revenue (Annual) Chart

EDU Revenue (Annual) data by YCharts.

Over the past five years, the company has achieved noteworthy growth in terms of both sales and EBITDA as well as generating stronger operational cash flow. Despite the outbreak of the novel coronavirus, management expects to report year-over-year revenue growth of about 18% for Q3 2020 (which ended on Feb. 29), lower than its initial guidance of 24.5%, but still impressive. And for those investors who still find the stock too risky, perhaps the fact that the company has a net cash position of $3.5 billion will allay their concerns.  

Look for the royal treatment

Another familiar defensive approach to take during a recession is to invest in gold. This doesn't mean one should start hoarding gold coins, per se, since there are a variety of ways to gain exposure to the yellow stuff. Instead, one method I find to be particularly alluring is to invest in a royalty and streaming company such as Royal Gold.

Providing upfront capital to mining companies to help finance the development of their capital-intensive projects, royalty and streaming companies thus receive the rights to buy a present quantity of gold (or other metal) at a discounted price, or to receive a percentage of mineral production from the asset.

While the company's past performance is no guarantee of what it will do in the future, it's worth noting how the company fared during the Great Recession.

^SPX Chart

^SPX data by YCharts.

As the S&P 500 tumbled 38%, Royal Gold soared 45%, outpacing the 19% rise in the price of gold. 

What, in particular, is so appealing about Royal Gold? For one, gold isn't the only metal to which the company has exposure. In 2019, for example, gold accounted for 78% of the company's revenue, while silver and copper each represented 9% of revenue, so investors have the opportunity to benefit from upticks in the prices of other metals.

Looking to the company's pipeline, investors will find the company has a yellow brick road ahead of it. While Royal Gold has 43 properties currently producing minerals, it has 15 projects in development. And even farther down the road, the company has 47 projects in the evaluation phase and 82 projects in the exploration phase.

What's someone whose worried about a recession to do?

For investors who are seeking the most orthodox approach to protecting their portfolios against a recession, utility and gold stocks such as American States Water and Royal Gold are obvious choices. Investors who are seeking to protect their portfolio from an economic downturn while adopting a less-mainstream approach, on the other hand, may want to take a look at New Oriental Education -- a company that will likely thrive regardless of the state of the U.S. economy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.