There's arguably no group of people more important to the U.S. economy than the Federal Open Market Committee (FOMC). This committee met last month. We have a clue as to what the committee is thinking thanks to the notes from that meeting. And the news isn't great.
Staff economists told the FOMC that it's likely that the U.S. will enter into a "mild recession starting later this year" because of the banking crisis. With the FOMC thinking that a recession is more likely, what should investors do? Here are three great stocks to buy that should hold up well during a recession.
1. Dollar General
At first glance, you might not think Dollar General (DG -0.98%) would be such a great stock to buy right now. After all, the discount retailer's shares have fallen so far this year while the S&P 500 is up. But Dollar General is arguably the ultimate recession-proof stock to buy.
Consumers tend to watch their pennies during economic downturns. That's good for Dollar General. The company offers discount prices on a wide variety of products, many of which are necessities. It also helps that Dollar General operates nearly 19,150 stores that are conveniently located within five miles of three-quarters of the U.S. population.
If there's an economic recession, Dollar General's private brands could gain even more momentum. The company is increasing its products available under private brands to include candy, snacks, perishables, pet food, and over-the-counter healthcare products.
Dollar General also continues to make headway in selling more frozen and refrigerated products. The company sold fresh produce in more than 3,200 stores at the end of 2022. It plans to expand the number to more than 5,000 stores by the end of this year. This frozen and refrigerated market stands out as one of the company's top growth drivers.
2. Johnson & Johnson
Johnson & Johnson (JNJ -0.46%) ranks as one of the top safe haven stocks on the market. When the going gets tough, investors typically flock to J&J. We saw this happen last year. While the overall market sank, Johnson & Johnson's share price rose a little.
One big reason behind J&J's appeal during economic downturns is that the company makes key healthcare products that people can't do without. Johnson & Johnson operates multibillion-dollar businesses selling consumer health products, medical technology, and pharmaceuticals.
The company plans to spin off its consumer health business later this year. However, that should be good news for investors because J&J's pharmaceutical and medtech segments generate stronger growth than consumer health.
Johnson & Johnson's dividend also offers investors something to love. The company is a Dividend King with 60 years of consecutive dividend increases. Regardless of what happens with the economy, you can count on J&J's dividend continuing to flow and grow.
3. Vertex Pharmaceuticals
Like Johnson & Johnson, Vertex Pharmaceuticals (VRTX 0.35%) markets therapies that people can't do without. What's even better for Vertex is that it doesn't have any competition. There aren't any approved drugs that treat the underlying cause of cystic fibrosis (CF) other than Vertex's four therapies.
This near certainty of revenue regardless of how the economy performs makes Vertex the kind of stock that's largely recession-proof. But the stock should deliver impressive returns even if the FOMC is wrong about the likelihood of a recession. In addition to its CF monopoly, Vertex thinks that it could have five new product launches over the next five years. Each holds the potential to generate multibillion-dollar sales.
All eyes right now are on exa-cel, a gene-editing therapy that awaits regulatory approvals in two indications -- sickle cell disease and transfusion-dependent beta-thalassemia. Vertex could also file for approval of non-opioid acute pain drug VX-548 and a new triple-drug CF combo next year.
That's not all, though. Vertex's pipeline also features inaxaplin, which is in pivotal development for treating APOL1-mediated kidney disease. This indication affects more patients worldwide than CF does. In addition, the company has a promising program in early stage testing that could potentially cure type 1 diabetes. With its strong CF franchise and multiple shots on goal, I predict that Vertex will be one of the biggest monster stocks of the decade -- recession or no recession.
