CEOs have warned that a recession could be on the horizon within the next year or two. During economic uncertainty, it's good to hold investments in companies with a proven track record of resilience in even the worst of times. You want to seek out businesses with steady demand for their products or services despite the economy.
McDonald's (MCD -0.42%), Progressive (PGR -1.00%), and Marsh & McLennan (MMC 0.26%) are three companies that fit the bill. These companies have proved themselves resilient amid economic downturns and are excellent stocks that can solidify your portfolio.
1. McDonald's value products give it a leg up in economic downturns
With rising prices and fears of a looming recession, McDonald's business gets a boost as customers seek low-cost alternatives. The fast-food chain attracts customers with its inexpensive deals, becoming an appealing option for those looking to save money.
McDonald's increased same-store sales in the third quarter by 9.5%, beating analysts' estimates of 5.8%. The chain has done well amid inflation and economic uncertainty and is gaining market share among low-income consumers, chief financial officer Ian Borden told analysts during its earnings call in October. Borden said McDonald's is "positioned as the leading brand in terms of value for money and affordability," giving cash-strapped customers value deal alternatives.
The company adapted to 2022's inflation, raising its prices by 10% in the quarter. But it's still one of the cheapest meal options in town. It's also done an excellent job developing its mobile app and loyalty program to get customers into the store more often and creating choices such as adult Happy Meals and celebrity meals without adding new menu items.
McDonald's is in an excellent position to benefit when consumers feel the pinch, making this a resilient stock that can bring stability to your portfolio.
2. Steady demand and stellar risk management help Progressive stand out
Progressive's resilience comes from a product that is always in demand: insurance. Regulations require insurance for auto owners, which is the company's primary business. It's not just the consistent demand that makes Progressive resilient -- it's also the company's stellar underwriting performance.
Insurance is a highly competitive industry that rewards those companies that manage their risks the best. Progressive has an established history as one of the best, if not the best, at writing profitable policies. Insurers use a metric called the combined ratio to determine how profitable their policies are. This ratio takes the total claims paid out plus expenses incurred by the company, divided by the total premiums collected. A ratio below 100% shows that a company is making a profit; the lower the percentage, the better.
The industry-average combined ratio for the last two decades is 99.7%, just slightly profitable. Progressive's combined ratio in that same period is 91.4%, a full 83 basis points better. With profitability that crushes the industry, it shouldn't be too surprising that Progressive delivered investors a 1,880% total return since the start of 2002.
Progressive stock kept chugging along in 2022. Since the start of the year, the stock gained 23.7% while the S&P 500 index has lost 17%. The insurer has held up well in this inflationary environment, raising its premiums to stay ahead of the curve on rising costs. It also benefits from higher interest rates since it can invest its extra cash into safe bonds with yields at their highest in years.
Progressive is a stellar stock that can do well in most environments, and its resilience can make your portfolio more robust in the face of economic uncertainty.
3. Marsh & McLennan grew its EPS in every recession since 1962
Marsh & McLennan has proved to be resilient in different market environments. One concern on everyone's mind right now is the threat of a recession in 2023. If we do get one, Marsh & McLennan is ready. During its earnings call in July, CEO Dan Glaser said something I found intriguing: The company has grown its earnings per share during every recessionary period since 1962.
The reason for its resilience is the steady demand for its services. Marsh & McLennan advises companies on several aspects, including risk management, insurance products, and consulting. Demand for consulting fluctuates based on how much (or how little) companies are willing to pay at a given time. During a recession, companies might cut costs in any way possible, which could spell trouble for this segment of its business.
But its risk management and insurance business keep it steady through tough times. This segment has helped the company significantly in recent years. Marsh & McLennan makes some of its money from commissions for referring clients to insurance companies. This revenue stream has grown steadily because of strong pricing trends for insurers, boosting its commissions. According to the Marsh Global Insurance Market Index, insurance prices increased 6% in the third quarter, the 20th consecutive month of increases.
In a world rife with uncertainty, Marsh & McLennan is well positioned. Companies have had a lot to deal with, including supply chain issues, inflation, market volatility, and other risks. Glaser told investors, "When the world is unsettled, demand for our services rises." If you're looking for a resilient business that performs across market cycles, it's hard to go wrong with Marsh & McLennan.
