Some investors sing in the rain. They own all-weather stocks, taking stakes in companies that thrive well in good times and bad.
The world's leading premium streaming service may seem like an odd place to start a list of recession-proof stocks, but let's roll the tape. We officially entered a recession last February, and Netflix came through with a market-thumping 67% return.
"No fair," you say.
It was a pandemic. We were stuck at home. Tiger King was comfort food. Sure, but let's rewind to 2008. The Great Recession took a cruel toll on investors. The S&P 500 plummeted 38% that year, weighed down by the subprime lending crisis. Netflix shares still managed to rise 12% in that environment.
Netflix may not be a cheap stock based on any valuation measuring stick, but it thrives as a company when the economy is at its worst. In 2008 we turned to DVD rentals by mail over the luxury of going to the movies. A dozen years later the rapidly expanding digital catalog at Netflix is pulling ahead from the competition for your living room's binge-viewing experience.
A retailer of automotive parts is also not the first thing you think about when you're in a recession, especially after the past year when the pandemic kept our cars in park. However, O'Reilly Automotive has been an all-weather beast.
Even in 2020, a year in which car ownership seemed less relevant, O'Reilly posted three consecutive quarters of double-digit sales growth. The head-turning stat here is that O'Reilly has now come through with 28 consecutive years of positive comps.
Why is the gear stick for the 5,594-store chain always in drive? When the going is good folks buy new cars and O'Reilly offers the accessories to keep fresh rides looking good. When the economy's not playing along O'Reilly still wins. We keep our cars longer, and that means investing more in maintenance to keep older model cars going.
It's easy to find my final pick for recession-bracing investors. Aim for the red-and-white bull's-eye. The "cheap chic" discounter had a monster fiscal year, capping things off with a great holiday quarter. Comps rose 20.5%, fueled largely by a 118% burst in digital sales, but also a 6.5% increase in store traffic.
Let's not dismiss that final nugget. We're comparing Target during the holidays in a pandemic to the prior year's COVID-19-free spree in a booming economy, and this is the better Target. Growth won't always be this spectacular. You actually have to go back to fiscal 2006 to find the last time it posted double-digit sales growth like it did in fiscal 2020. Giving consumers quality and often stylish products at a discount is a pretty good model when the going gets tough.
Don't let fears of an economic slump get you down. If you want to know what to invest in during a recession, Netflix, O'Reilly Automotive, and Target are a good places to start your due diligence.