High inflation, rising interest rates, and home affordability have investors worried. Fears of a looming recession are making many people question whether now is a good time to invest. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are down 13%, 20%, and 10% year to date, respectively.
But it's important to remember that some businesses will endure a recession with little to no impact. There are companies that should thrive regardless of how the broader economy is doing. Let's examine three.
My first choice is Microsoft (MSFT 0.45%). When some people think of Microsoft, they imagine the software start-up that became prominent under Bill Gates in the 1980s and '90s.
But that company, in many ways, is long gone. Current chief executive officer Satya Nadella has led Microsoft into new fields during his eight-year run as CEO.
Cloud computing, not personal computer software, now makes up most of Microsoft's nearly $200 billion annual revenue. Moreover, its intelligent cloud division is growing 20% year over year. That's 10 times as fast as its personal computing segment.
This rapid cloud growth, combined with its stable revenue from its personal computing and productivity divisions, insulates Microsoft from the ups and downs of the broader market. High levels of inflation (the main driver of current recession fears) might actually increase the demand for cloud products.
As Nadella pointed out in Microsoft's fiscal year 2022 earnings report in October 2021, the company's products are deflationary. Many companies can keep their prices down by purchasing software and cloud services that make their businesses more efficient and productive.
What's more, Microsoft offers investors a safe harbor to ride out any truly scary recession. The company has more than $100 billion of cash on its balance sheet and generated $89 billion of operating cash flow over the last 12 months. It pays a steady, if modest, dividend, and its board has authorized an ongoing $60 billion share repurchase program.
In a recession, consumers tend to cut back on discretionary spending -- goods and services that are enjoyable but ultimately unnecessary. However, medical care is, of course, non-discretionary. If you need it, you need it. And the same goes for animals.
Farmers must care for their livestock by providing preventative medications and drugs that treat disease. Likewise, pet owners need a variety of medicines to keep their pets healthy -- regardless of whether the economy is growing or not.
What's more, Zoetis stands to benefit from the enormous -- and ongoing -- growth of the pet market. Morgan Stanley estimates that in the U.S. alone, overall pet spending should more than double to $275 billion by 2030.
Zoetis could offer the best of both worlds for investors looking to ride out a recession: stable non-cyclical revenue plus accelerating revenue growth from the pet market.
My third and final recession-resistant stock is UnitedHealth Group (UNH -0.83%). Much like Zoetis, UnitedHealth is insulated from a recession because its business is healthcare. But in the case of UnitedHealth, it's human healthcare instead of animals.
UnitedHealth is arguably the world's largest and most important healthcare company. With a market cap of $508 billion, it is the largest American healthcare company and the seventh-largest American company overall. In point of fact, UnitedHealth's market cap is larger than the combined market caps of Pfizer ($276 billion) and Merck ($223 billion) -- both of which are medical giants in their own right.
The company spans the American healthcare system, connecting patients, providers, hospitals, employers, clinics, and governmental agencies. Moreover, it boasts some 26 million insured patients via plans sponsored through employers, the public sector, or individual marketplaces.
UnitedHealth generated $23 billion in operating cash flow over the last 12 months on over $306 billion in revenue. The company pays a decent dividend that yields 1.2%.
All in all, UnitedHealth could be the perfect place to find peace of mind if you're an investor worried about a recession.