10 Stocks That Can Withstand Even the Toughest Environments

In a record bull market, you may not be thinking of recession-proof stocks, but the recent jitters over rising interest rates should serve as a reminder that a stock market crash can happen at any time. There are always risks in the market, including the supply chain crunch, China’s crackdown on education and big tech companies, and the ongoing coronavirus pandemic.

The crash last March was a good reminder of why it’s always nice to have at least a few bulletproof stocks in your portfolio. Keep reading to see 10 that make the list today.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Costco Wholesale (NASDAQ: COST) is now the third-largest retailer, behind only Walmart and Amazon, and it has accomplished that with a wonderfully simple business model. The company opens cavernous, membership-based retail warehouses and sells quality merchandise for rock-bottom prices.

While Costco has made inroads into e-commerce more recently, the company’s core business remains its brick-and-mortar stores. In fact, it makes most of its profits from membership fees, selling goods at near cost.

Because of its bargain prices, Costco can perform well even in a recession as most of the goods it sells are consumer staples like groceries and toilet paper. Even as e-commerce has overshadowed physical retail, Costco shows no signs of slowing down.

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As a nearly 200-year-old diversified household products company, Procter & Gamble (NYSE: PG) is exactly the kind of business that most investors think of when they imagine one that can succeed in any environment. P&G has more than 20 billion-dollar brands, including household names like Tide, Gillette, and Crest, and is diversified across those product categories and others, including beauty, healthcare, and baby care -- all products that consumers buy because they need to, not because they want to.

Procter & Gamble is also a Dividend King, having raised its dividend every year for 65 years, through multiple recessions, the great financial crisis, and the coronavirus pandemic.

That’s the kind of track record that shows it can withstand any kind of environment.

Warren Buffett has built his Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) conglomerate into one of the best stocks of the last 50 years with a history of returning a compound average of 20% each year, trouncing the S&P 500. That owes largely to Buffett’s stock-picking prowess and his ability to put together a stable of businesses with enduring profit streams and recession-proof business models.

For example, one of Berkshire’s largest subsidiaries is Geico, the insurance giant. People need auto and homeowners insurance regardless of the economic climate, and the insurance model also offers Buffett the benefit of being able to invest those insurance premiums. Now in his 90s, Buffett won’t be running Berkshire forever, but he’s built to company to last and its diversification may be unrivaled across the stock market.

Healthcare is a recession-proof industry as people need prescription drugs, preventive care, and emergency operations in good times and bad. Much of the industry offers the benefits of being reliable in any environment, but Johnson & Johnson (NYSE: JNJ) stands out for a few reasons.

First, unlike most healthcare companies, it is diversified across three major business segments: pharmaceuticals, medical devices, and consumer products. That means the company isn’t as sensitive to risks like the patent cliff that other drugmakers are or delays in elective surgeries that have affected medical-device makers during the pandemic.

Johnson & Johnson is also only one of two American companies with an AAA credit rating from the S&P. (Microsoft is the other one.) The healthcare giant is also more than 100 years old and is a Dividend Aristocrat, having raised its quarterly payment every year for 59 years in a row.

ALSO READ: 3 No-Brainer Stocks to Buy in a Market Crash

It’s rare for companies to actually perform better in recessionary environments than in normal economies, but that’s exactly the case with Dollar General (NYSE: DG). The discount retailer actually benefits from tough times as consumers tend to trade down to cheaper products and look for small pack sizes.

Dollar General’s business model has thrived in good times and bad, however, as the company is penetrating an underserved market in rural America. It’s also the biggest retail chain in the country, now with more than 17,000 stores around the country and opening roughly 1,000 every year.

That kind of store footprint also helps make Dollar General the dominant discount retailer nationwide.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

PepsiCo (NASDAQ: PEP) is best known for its namesake beverage, but the company is much more than that. It’s a global diversified food and beverage giant with brands including Gatorade, Quaker, Tropicana, and Frito-Lay.

Pepsi’s array of well-known brands, distribution network, and marketing muscle create barriers to entry in its industry and give it a competitive advantage. It’s also helped it grow through acquisitions, as it can take smaller brands and grow them through its distribution machine.

Pepsi wasn’t unscathed during the pandemic as its restaurant business took a hit, but its products tend to sell regardless of the state of the broader economy. Finally, the food and beverage giant is a Dividend Aristocrat with a track record of raising its dividend 49 years in a row, showing investors they can rely on it even in tough times.

It might seem strange to see a tech company on this list, but Microsoft (NASDAQ: MSFT) has demonstrated its ability to deliver for investors as a cornerstone of enterprise technology and a highly profitable diversified tech giant. The company has thriving businesses in gaming, cloud computing, and office and productivity software, as well as one of the most recognizable brand names in the world. It’s also diversified through acquisitions like LinkedIn and GitHub, complementing its core enterprise software business.

Additionally, Microsoft enjoys a AAA credit rating from the S&P, the only company to do so along with Johnson & Johnson, and has raised its dividend payments every year since 2010.

ALSO READ: 4 Reasons to Hold Your Investments During a Recession

You might be surprised to learn that WD-40 (NASDAQ: WDFC), a company best known for its namesake cleaning and maintenance product, has been a top stock performer over its history. In fact, the stock is up nearly 500% over the past 10 years.

The company has grown by expanding into international markets and rolling out new products with the WD-40 name. Its brand strength has underpinned its success. WD-40 also stands out in its category as a multiuse product for purposes such as lubricating, rustproofing, and degreasing, and is used frequently by artisans, mechanics, and maintenance workers.

It’s the kind of the product that has no perfect substitute and that you buy because you need it, not because you want it. That explains why the brand has been around since the 1950s, and why the stock can survive any market environment.

Arguably, there is no more recession-proof sector than utilities as these companies are generally regulated monopolies that provide basic necessities like water, electricity, and heat. Water, of course, is essential and used every day, making American Water Works (NYSE: AWK) a great choice for stocks that can weather any environment.

American Water Works serves 3.5 million customers across 16 states, primarily in New Jersey and Pennsylvania, and has actually outperformed the market in recent years as the company has expanded through acquisitions and benefited from rising rates.

The stock is up nearly 500% over the past decade, and it's a reliable dividend payer with a yield of 1.4%.

AutoZone (NYSE: AZO) and auto parts retail are known for their recession-proof characteristics, as vehicle owners tend to delay buying new cars when times are tough, instead repairing their current set of wheels. Sales for the company have accelerated in the past coming out of recession, and that was true again during the coronavirus pandemic, though that may have to do more with stimulus payments and consumers taking on DIY auto projects during a time of social distancing.

AutoZone has behaved like a classic value stock over its history, trading at a modest valuation as the company has steadily grown profits and used those cash flows to buy back stock, reducing its share count by nearly half. That’s helped the stock gain more than 400% during that time.

That financial stewardship and being in an industry that thrives during recessionary environments mean that AutoZone can weather even a difficult economy.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Recession-proof stocks come in all shapes and sizes, and from a variety of sectors. In general, you’ll want to look for stocks that have withstood past recessions, are trading at reasonable earnings multiples, have a business model that can perform even in times of change, and sell products that consumers need regardless of the state of the overall economy.

If they have a long track record of paying and raising their dividends, that’s all the more the reason to count on them in even the toughest environments.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), Costco Wholesale, and Microsoft. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2022 $1,940 calls on Amazon, short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.