We are headed for what could prove the deepest recession in American history. After never having weekly unemployment claims of more than 1 million people, some 10 million people filed over the past two weeks, and it's expected that another 5 million or more will file this week.
Simply put, the COVID-19 pandemic is causing an economic decline unlike anything we've ever faced before, as people and businesses are forced to close their doors to stop the spread of the virus.
But even in this environment, there are still businesses that remain necessary and vital, providing utility services, caring for the elderly, and providing access to healthcare services. Over the past few years, as part of my plan to prepare for recession, I've made significant investments in companies that fit in this bucket, and three have risen to the top of my portfolio.
The top three (technically four, but two are merging so I'm discussing them as a single investment) in my portfolio are Terraform Power (TERP) and Brookfield Renewable Partners (BEP -1.60%), CareTrust REIT (CTRE 0.59%), and Teladoc Health (TDOC -6.16%). Keep reading to learn why I've invested in these recession-resistant businesses, and why I intend to keep holding them for years to come.
A powerful combination
Brookfield Renewable and Terraform Power have been closely linked, with Brookfield already owning a controlling stake in its smaller subsidiary for several years and Terraform's management and board now laden with Brookfield executives.
With Terraform having agreed to be fully acquired by Brookfield Renewable, the combined business, which will operate under the Brookfield Renewable name, will become my largest single investment, representing about 4% of my portfolio.
What makes this a recession-resistant business? In short, it supplies electricity to utility companies, and that's one of the most steady businesses out there. Utility demand is likely to fall some in the coming months with so many businesses closed, but Brookfield Renewable should still be able to sell the bulk of the electricity its hydroelectric, wind, and solar power facilities generate.
Yet even with the very nature of its business built on providing a critical service across every economic environment, investors have sent shares down. At recent prices, investors could have Brookfield Renewable or Terraform Power shares for a 21% discount to the 2020 pre-crash peak. That makes it buy-worthy for anyone looking for a strong business that's built to last through any economic downturn.
A critical need in a downtrodden sector
Nursing homes are very important, providing critical care and housing for some of our most vulnerable people: seniors with illnesses that put them at immense risk of death from COVID-19. And we've already seen a number of nursing homes ravaged by this deadly disease.
Beyond the devastating loss of life, investors have fled nursing home stocks en masse, with some of the biggest owners of nursing homes' shares still down 40% and more. This is partly out of fear of ending up holding a nursing home stock that owns a facility that gets hit by this terrible disease and faces the financial implications, but also worry that the nursing home industry will see a mass exodus of residents.
Yes, there are very real risks on both counts, from a pure financial concern. But both are likely to prove short-term worries, as the best-run facilities prove capable of keeping their vulnerable members -- and their employees -- safe from infection, and the mega-trend of Baby Boomers aging steadily increases the number of people who will depend on these facilities as they get older.
Economic ups-and-downs don't move the needle for this industry; demographic trends do. That's why I've made CareTrust, one of the smaller companies in the space, but what I have come to believe is the best-run, to be the best investment. I think the market agrees; at this writing CareTrust's stock price has bounced back, and has done far better than its bigger peers:
That's why it makes up 3% of my portfolio and is my second-biggest recession-resistant investment. It's also a stock I have on my short list to buy more of.
One you might not think of as recession-resistant
Teladoc Health has been one of the few winners since stocks started falling in late February. Since February 20, its stock price is up almost 20%, though the past couple of weeks have seen it give up about half its gains during the market crash.
Of course, the reason Teladoc's shares have gone up while most of the rest of the stock market has fallen is obvious: The company is a leader in telemedicine, connecting patients with providers without having to meet in-person. A global viral pandemic has made the benefits of telemedicine even more apparent.
Heck, it's become more than just an interesting idea. In early March, the company said at one point, usage shot up 50% from one week to the next. Most companies would be ecstatic to see that kind of growth over a couple of years.
It's also driven enormous investor and business interest in the company over the past six weeks, as investors look to get in on this amazing technology, an companies look to leverage it to improve health outcomes and lower healthcare costs.
Other communications providers like Zoom Video Communications (ZM -3.57%) are seeing massive gains as work-from-home becomes the temporary default, but it's not clear how "sticky" those new customers will prove when we all go back to the office (and the church, the gym, and the concert hall).
Teladoc investors shouldn't have those concerns, just as they shouldn't worry about the current or any future recession impacting its prospects or revenues. To the contrary, Teladoc's core business offering will remain valuable in any environment. It substantially increases patient access to healthcare providers, lowers costs for payers (businesses, governments, and insurers) and improves outcomes.
That's why it makes up about 2% of my portfolio and is also high on my list of stocks to buy more of.