You may have heard the word "recession" more than once in your water cooler talk at work. It's not a coincidence. A January poll of economists estimated that there is a 61% chance that the United States will enter a recession in 2023. That doesn't mean it's a certainty, but it's something investors should prepare their portfolios for now.
More-speculative companies can struggle in a recession when consumers spend less and capital is harder to access, especially for technology stocks. So instead it's best to look at battle-tested businesses. Here's a look at three that have survived severe recessions already -- and whether they are worth buying today.
1. Amazon
Amazon (AMZN -0.16%) has endured every significant market crash since it was founded in the late 1990s. Most people know Amazon for its massive e-commerce business -- over a third of all online shopping goes through it. But its cloud segment, Amazon Web Services, is also crucial. It's the world's largest cloud platform and generates most of the company's operating profits.
You can see below how huge the business has become. It's a solid contender to become the first company to do $1 trillion in annual sales. Analysts estimate it could reach that benchmark by the end of the decade, so Amazon looks to have more upside for the years ahead.
AMZN revenue (TTM) data by YCharts. TTM = trailing 12 months.
But is Amazon a good buy today? The stock trades at a forward price-to-earnings (P/E) ratio of 62. That isn't cheap, but analysts believe the company's earnings per share (EPS) could grow by 18% annually over the next three to five years.
At that pace, the stock could grow into its valuation reasonably quickly. Investors looking for a battle-tested blue-chip stock could do well with Amazon over the long term.
2. IBM
Few technology companies are as old as IBM (IBM 1.38%), which was founded in the early 1900s and is still a household name today. The company's golden years were arguably the 1980s to early 2000s, when its enterprise computing systems and personal computers were all the rage.
It has had to evolve over the years, and today it focuses more on consulting, software, hybrid cloud systems, and machine learning.
IBM's long history means that it also has endured the ups and downs of the economy over time. It is hardly a growth stock anymore, and revenue has declined over the years. The company shed its managed IT infrastructure business, spinning it off as Kyndryl, to focus on growth.
However, most investors today probably own IBM for its generous dividend, yielding roughly 5% at the current share price. Management has increased the payout for 27 consecutive years.
IBM Revenue (TTM) data by YCharts.
The dividend is showing some early signs of potential trouble. The payout ratio has climbed to nearly 70% of cash flow, leaving little cash for IBM to manage a balance sheet that's taken on almost $51 billion in long-term debt.
The slowly worsening financials make IBM at least somewhat risky as a long-term dividend stock, considering that you can get nearly 4% from U.S. Treasury bonds. Those concerns make it hard to justify buying shares right now.
3. Verizon Communications
Telecommunications are arguably more important today than ever. Verizon Communications (VZ -0.85%) is one of the largest wireless carriers in the United States.
It connects the smartphones we use for talk, text, email, shopping, and posting on social media. The company has 143 million wireless retail connections generating over $136 billion in annual revenue.
Verizon is recession resistant because it behaves like a utility. Customers prioritize paying their phone bill, much like buying groceries or paying their electric bill -- it's a household staple.
Verizon is growing revenue by just a couple of percentage points each year. That won't blow you away, but it makes up for it with a dividend that yields 6.5% today. And management has increased it for 18 years.
VZ Revenue (TTM) data by YCharts.
The stock trades at a forward P/E of just 8, half it's median of 16 over the past decade. Analysts believe the company's EPS will grow by 4% annually over the next three to five years. In other words, an investor could see 10% total returns between earnings growth and dividends.
That is enough to make Verizon a solid portfolio addition; any upward movement in the stock's valuation would be a bonus. The seemingly low bar for double-digit returns makes Verizon a solid stock worth considering.
