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3 Stocks to Buy if You're Worried About a Recession

By John Bromels – Jul 29, 2020 at 11:12AM

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These top businesses should manage to outperform even during a downturn.

Yes, it's true: We're technically already in a recession.

However, the stock market doesn't seem to have gotten the memo: The S&P 500 is down less than 1 percentage point for the year. Many stocks have already climbed out of their March holes into positive year-to-date territory. 

But there's always the chance of a "double-dip" recession, and with unemployment remaining high and COVID-19 still a threat, investors are right to be concerned. If you're worried that another market drop is imminent, you'll want to consider recession-resistant stocks like Waste Management (WM -0.31%), Atlantica Sustainable Infrastructure (AY -3.94%), and Brookfield Infrastructure (BIP -3.56%). Here's why.

A young woman sits at a laptop with her eyes closed and her hand to her head.

Image source: Getty Images.

1. Waste Management: Can't do without it

Some of the best-positioned companies to weather an economic downturn are those that provide essential services, like utilities, infrastructure, or, in this case, trash pickup. Municipalities and companies would have to be in dire straits indeed to start letting trash pile up in front of residents' houses or outside their office buildings. 

As the largest trash hauler and landfill operator in North America, Waste Management is perfectly positioned to take advantage of this fact. The barriers to entry in the trash business are high, requiring land zoned for a landfill and a fleet of trucks and other heavy equipment to transport, sort, and manage the garbage. 

Waste Management may see a short-term drop in its corporate revenue segment if business and office closures drag on due to coronavirus. Over the long term, though, the company looks like a buy, with a share price that's down 6% year to date and a dividend yield of about 2%. 

2. Atlantica Sustainable Infrastructure: All around the world

A major U.S. recession would almost certainly cause ripple effects affecting various regions around the globe. However, the U.S. is dealing with a unique set of circumstances right now, including rising COVID-19 infections and an upcoming presidential election, which may leave overseas economies relatively unscathed in the event of a U.S. economic downturn.

That would be good news for U.S. companies that primarily operate outside the U.S., including renewable yieldco Atlantica Sustainable Infrastructure. Atlantica doesn't specifically break out its U.S. numbers, but the country represents less than one-third of its revenue and EBITDA:

Region 2019 Revenue Percentage 2019 Adjusted EBITDA Percentage Locations and Number of Assets
North America 32.9% 37.3% U.S. (2), Mexico (2)
South America 14.1% 14% Chile (3), Peru (4), Uruguay (3)
Europe/Middle East/Africa 53% 48.7% Algeria (2), Spain (8), South Africa (1)

Data source: Atlantica Sustainable Infrastructure.

All of Atlantica's assets -- which include solar and wind farms, power and desalinization plants, and electric transmission lines -- are governed by long-term regulated, take-or-pay, or fixed-rate contracts, which means they're already recession-resistant. The company's large overseas footprint is icing on the cake. So far, its operations haven't seen a major impact from COVID-19, despite its heavy presence in hard-hit countries like Spain and Peru. This 5.4% dividend yielder is a good pick for shoring up your portfolio.

3. Brookfield Infrastructure: A bit of both

Canadian asset manager Brookfield Infrastructure -- now available in its original master limited partnership (MLP) flavor or in new C corp Brookfield Infrastructure Corp. (BIPC -3.91%) variety -- combines the best recession-resistant aspects of Waste Management and Atlantica Yield.

Like both Waste Management and Atlantica, Brookfield provides essential services, with a portfolio consisting largely of essential infrastructure like natural gas pipelines, utilities, electric transmission lines, railroads, and data infrastructure. Like Atlantica, its assets are located around the globe, with just 30% of its funds from operations coming from North America. Its 4.8% current yield is also similar to Atlantica's. 

Brookfield looks like a buy. 

Hang on tight

There's no such thing as a "recession-proof" stock. As we saw in March, when the broader market drops by a lot, most (if not all) stocks tend to do the same. However, recession-resistant stocks like Waste Management, Atlantica Sustainable Infrastructure, and Brookfield Infrastructure are likely to outperform many other companies and sectors if the U.S. economy takes another turn for the worse.

John Bromels owns shares of Brookfield Infrastructure Partners and Waste Management. The Motley Fool recommends Brookfield Infrastructure, Brookfield Infrastructure Partners, and Waste Management. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Waste Management, Inc. Stock Quote
Waste Management, Inc.
$165.22 (-0.31%) $0.52
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$38.20 (-3.56%) $-1.41
Atlantica Sustainable Infrastructure plc Stock Quote
Atlantica Sustainable Infrastructure plc
$28.00 (-3.94%) $-1.15
Brookfield Infrastructure Corporation Stock Quote
Brookfield Infrastructure Corporation
$45.24 (-3.91%) $-1.84

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

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