It's probably too much to say that any stock is "recession-proof," since virtually every stock plunged during the early stages of the pandemic, when the crisis rapidly pushed the country into a recession. Yet the speed at which some businesses rebounded does show that there are indeed recession-resistant stocks.
The three companies below could very well be just the sort of investments you're looking for to cushion your portfolio the next time the bottom drops out of the market.
Back when Apple (AAPL 0.48%) was just a maker of pricey niche computers, it would have never been considered a recession-beating stock. But since then, of course, it has diversified across consumer electronics and the digital entertainment ecosystem. Now, Apple and its products are so embedded in the lives of its fans that not even the closure of all of its brick-and-mortar retail stores could derail it.
For the company's fiscal fourth quarter, which ended Sept. 26, revenue came in at a record $64.7 billion. As CEO Tim Cook noted, "Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever."
While Apple Stores had mostly reopened by fiscal Q4, Cook also pointed out that the rest of the year "established new all-time records for revenue, earnings per share, and free cash flow."
The tech giant's ability to grow in an environment that ground down many other businesses is a testament to the brand loyalty it inspires, and the stickiness of its ecosystem. Once you're enmeshed in it, it's not easy to extricate yourself -- and most Apple users don't want to.
Even after paying out $14 billion in dividends in fiscal 2020, Apple still has more than $38 billion in cash sitting in the bank, a large enough buffer to see it through tough times and perhaps allow it to make some acquisitions as well.
Facebook (META) has proven its ability to weather fierce storms despite being the social network people love to hate.
While other media outlets bemoaned the collapse in advertising spending as the pandemic led companies to rein in their marketing, advertisers keep flocking to Facebook. During the April-June quarter, when the economic pain of the crisis was at its most acute, the social networking giant's ad revenue rose 10% year over year to $18.3 billion. In the third quarter, it shot 22% higher to $21.2 billion.
That's likely because the daily average user figures for Facebook's various platforms continued to grow, and because the pandemic has made people even more reliant on such digital tools to keep in touch with one another.
Moreover, apps like WhatsApp and Instagram exert significant influence on their users' daily habits. As they expand their reach, Facebook will keep looking for ways to monetize their audiences.
Not every recession will look like this one, but Facebook has again shown how firmly it's embedded in the lives of billions of people worldwide, making it a solid stock to be holding when the next downturn hits.
3. Procter & Gamble
What the cases of Apple and Facebook demonstrate is that when the chips are down, the companies that thrive are the ones that are integral to people's daily lives. That certainly applies to Procter & Gamble (PG 1.78%).
Procter & Gamble's portfolio of essential consumer products includes Crest toothpaste, Tide laundry detergent, and Pampers diapers -- and even in hard times, those aren't the sort of things people decide to go without. In its fiscal 2021 first quarter, which ended Sept. 30, organic sales rose 9%. That led to a 22% rise in currency-adjusted earnings per share.
Foundational to that strong performance were P&G products that are used day in and day out, and that have become the No. 1 or No. 2 brands in their respective categories.
Procter & Gamble's stock is now up by about 10% year to date (and up almost 50% from its March low point), and at 23 times forward earnings estimates, it trades at a slight discount to rivals such as Colgate-Palmolive, which goes for 26 times forward P/E. Because the two companies are similarly situated, that makes P&G stock arguably a slightly better bargain.
At current share prices, Procter & Gamble's dividend yields 2.3% annually, again, slightly ahead of Colgate-Palmolive, which yields 2%. P&G made its first payout in the late 1880s, and has raised its dividend annually for more than 60 years straight. That's the kind of solid financial performer that investors should seek out when looking for safe stocks to own during a recession.