2 Recession-Proof Stocks Investors Should Have On Their Radar

With the news buzzing about whether the economy is truly in a recession or not, it's a good time for investors to take a look at their portfolios and determine whether the companies they own are recession-proof. While the recession label perhaps gets thrown around too often, I believe these two stocks can live up to recession-proof expectations.

CrowdStrike (CRWD -1.82%) and Autodesk (ADSK -5.84%) are both software companies that operate on the subscription model, making them resilient to yearly trends. Furthermore, the software these two provide is vital for day-to-day business operations, so they are unlikely to get axed during budget cuts. Let's dive in to understand why these two tech stocks are great investments.

CrowdStrike

Regardless of the economy's health, cybercriminals aren't going to back down. In fact, the current environment may encourage them if they can identify a target that recently reduced its IT staff. These threats make cybersecurity software like CrowdStrike a necessary expense. Additionally, the value proposition CrowdStrike provides its customers is unparalleled.

Market research firm Forrester Research found that CrowdStrike's product provides the equivalent of $1.5 million worth of coverage that a company with roughly 7,000 people would typically spend on additional security staff. Furthermore, the same hypothetical company's return on investment (ROI) for a CrowdStrike subscription was 403% over three years. In some capacity, CrowdStrike's offering can be seen as a way to streamline expenses while increasing protection.

The last time investors heard from CrowdStrike was during its 2023 fiscal year first quarter (ended April 30) earnings call, where the company provided solid results. Its annually recurring revenue (ARR) rose 61% YOY (year over year) to $1.9 billion, and the customer count was up 57% to 17,945. With a large and growing recurring revenue stream, CrowdStrike will be well insulated from any economic effects.

To further help its recession-proof nature, CrowdStrike is free cash flow positive and produced $158 million during the quarter against $488 million in revenue. Because CrowdStrike can fund itself, it won't need to seek outside help to sustain operations.

Investors will need to tune into CrowdStrike's second-quarter results on August 30 to learn about how the company is operating in a challenging environment. I expect it to continue its rapid growth pace that is primed to achieve its goal of $5 billion in ARR by January 2026.

Cybersecurity is a long-term need for many companies, and regardless of what the economy is doing, it is a necessary expense. This designation makes CrowdStrike a top stock to invest in during good times and bad. 

Autodesk

Autodesk is a much more mature company than CrowdStrike -- its first product hit the market in 1982. Because of its age and experience, Autodesk has seen (and survived) multiple recessions. During these times, customers would often choose not to upgrade their software to the newest version to save money. These decisions adversely affected Autodesk and caused its revenue to drop during recessions. Of course, its customers could continue using the old version; they just wouldn't have the most up-to-date product.

This side-step is no longer possible. Autodesk has recently transitioned its customer base from a yearly package to a subscription model. Now, customers have to pay an annual fee to continue using its product suite or lose access.

Losing access to AutoDesk's software isn't feasible -- engineers and architects use Autodesk's products to design and maintain anything they work on. Because of their daily use, companies that utilize Autodesk's software are stuck paying the annual subscription. Moving to a competing computer-aided design (CAD) package is possible but also tricky, time-consuming, and expensive.

With a product that is required for daily work and a subscription model, Autodesk is well positioned to weather any storm. However, it will not produce explosive growth like CrowdStrike due to its maturity. During its FY 2023 Q1 (ended April 30), Autodesk's total revenue rose 18% YOY to $1.17 billion, while billings (a more accurate representation of product usage growth) were up 16% to $1.13 billion. Autodesk is profitable, but posted earnings per share (EPS) declined from $0.71 last year to $0.67 due to tax charges. From a non-GAAP standpoint, EPS rose to $1.43 compared to $1.03 last year.

Another recession-proof quality Autodesk possesses is its global diversification.

Data source: Autodesk. EMEA = Europe, Middle East, and Africa. APAC = Asia-Pacific. YOY = year over year.

Because Autodesk's revenue is spread out among many countries, it's less affected by a localized downturn.

I'm confident Autodesk's new business model will thrive during a recession, making it an excellent addition to any investor's portfolio.

With both of these companies, it's unlikely revenue will fall during a recession. However, growth may be challenging compared to previous years. Still, with the necessity of these two software companies, they are better positioned than many discretionary-based businesses that may struggle in the coming months if the U.S. plunges into a recession.