Since the start of this year, the S&P 500 index has gained 8%, but there is some uncertainty if the market can keep its positive momentum going. During the March Federal Open Market Committee meeting, Federal Reserve officials said they expect the U.S. to enter a mild recession before the end of the year.
The threat of a recession makes investing intimidating. However, the best way to build wealth over time is by consistently adding to your nest egg. One smart thing you can do is invest in quality companies with strong balance sheets that can ride out a recession and continue growing. If you have $1,500 to invest, three stocks you can confidently add today are Interactive Brokers (IBKR 0.83%), Progressive (PGR -0.85%), and March & McLennan (MMC -0.38%).
1. Interactive Brokers keeps gaining customers
Interactive Brokers provides electronic brokerage services to investors, where they can trade stocks, options, bonds, futures, and exchange-traded funds. Investors are flocking to the trading platform because of its higher interest rates on cash and low cost of trading. Over the past five years, Interactive Brokers has grown its customer count by 332%, or 34% annually.
Its secret to low-cost trades is its automated platform that appeals to tech-savvy investors. Most of Interactive Brokers' senior managers are software engineers committed to automating as much of the business as possible. By automating most of the business, Interactive Brokers can achieve impressive margins. Its pretax margin last year was 71% -- well above many competitors in the financial sector.
In the first quarter, the company posted revenue of $1.06 billion, up 64% from last year. Net interest income (NII), or the difference between interest paid out on customer accounts and interest collected on loans, was a huge growth driver. NII was $637 million in the quarter, up 126% from last year when the Fed began its interest rate hikes.
It was also a rare example of a company seeing its client cash balances grow in the first quarter when other brokers and banks saw customer deposits decline. Interactive Brokers has navigated this higher-interest rate environment quite well and is positioned to keep growing, regardless of what the economy does.
2. Progressive is a cash-generating machine
Insurance stocks can be solid investments because they have steady demand and can consistently generate cash flow. Don't just take my word for it. Berkshire Hathaway Chief Executive Officer Warren Buffett has said his company's insurance investments are a key component of its long-term success. Progressive is one of the best insurers, consistently churning profits and cash flow for its investors while delivering excellent stock returns.
Data source: YCharts PGR Revenue (TTM)
What makes the business solid is its resilience in different economic conditions. The company has navigated the inflationary environment quite well, raising its premiums and achieving industry-beating profitability once again.
Its net written premiums grew 22% in the first quarter to $16.1 billion. While it saw an uptick in loss expenses in the quarter, the effect will likely be temporary -- presenting investors with an excellent opportunity to buy the dip on this solid insurer.
3. Marsh & McLennan
Marsh & McLennan provides insurance brokerage and consulting services to corporations and governments worldwide. The company's revenue is split, with 60% coming from risk and insurance services and 40% from consulting.
Marsh & McLennan's business is robust because it thrives on risk in the economy and markets. In the past few years, companies have seen supply chain disruptions, inventory buildups, labor shortages, cyber attacks, and a shift toward greener energy. Marsh & McLennan's job is to help companies navigate these disruptions while protecting them from the risks they pose.
Data source: YCharts MMC Revenue (TTM)
In the first quarter, the company posted revenue of $5.9 billion, up nearly 7% from the year before. Consulting saw 1% growth. If the economy does slow, this segment could see revenue decline as companies cut costs. However, its insurance business grew 10% in the quarter and should continue providing stability and cash flow in any recession.
