What Are 5 Recession Resistant Industries?
When a recession or an economic slowdown occurs, markets become volatile leading investors to sell stocks. While some industries are very susceptible to economic changes, other industries perform well regardless of what's happening with the economy.
Although no company is entirely recession-proof, the following industries tend to see strong performance even when unemployment increases and consumer sentiment falls. Therefore, it's typically an excellent strategy to add these companies to your portfolio when a recession hits, or ideally before one does.
In addition, industries like grocery stores and alcoholic beverages held up well during the COVID-19 pandemic, although the cosmetics industry struggled, except for skincare lines and gadgets that sold well.
- While some industries are very susceptible to economic changes, other sectors tend to perform well during recessions.
- However, no company or industry is 100% safe from an economic crisis or recession.
- Consumer staples and alcoholic beverage industries all performed well during the COVID-19 pandemic.
- Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as a pandemic.
- Discount stores often do incredibly well during recessions because their staple products are cheaper.
1. Consumer Staples
No matter what happens in the economy, people still need certain household items on a recurring basis. Toothpaste, soap, shampoo, laundry detergent, dish soap, toilet paper, and paper towels. Since these products are always in demand, they're considered consumer staples.
Major companies in this sector include Colgate-Palmolive Company (CL), Proctor & Gamble Co (PG), and Unilever N.V. (UN). If you look at the manufacturer of many items in your home, you will find these companies. They each own more than 30 major brands as well as dozens of smaller brands.
2. Grocery Stores and Discount Retailers
Consumer staples have to be purchased somewhere, and many of those purchases happen at grocery stores or large retail chains with locations around the world. The Kroger Company (KR), WalMart Stores, Inc. (WMT), and Costco Wholesale Corporation (COST) are among the largest grocery chains in the United States. These powerhouse retail giants collectively bring in hundreds of billions of dollars in revenue.
No one can guarantee an industry won't tank during a financial crisis, but the grocery and consumer goods industry usually holds up well in times of crisis.
3. Alcoholic Beverage Manufacturing
Beer, wine, and distilled beverages are high-margin products that are in demand. In recent years, a small group of companies has acquired many of the largest beer and spirit brands around the globe. The largest companies in this sector include Anheuser Busch InBev SA (BUD), Companhia de Bebidas das Americas (ABV), and Diageo plc (DEO). Anheuser-Busch InBev owns brands such as Budweiser, Corona, Stella Artois, Beck’s, Leffe, and Hoegaarden. UK-based Diageo controls brands include Smirnoff, Johnnie Walker, and Tanqueray.
Although research has shown that consumers tend to spend less in total dollars on alcohol and other vices during a recession, the quantity tends to increase as people buy more less-expensive products. If you keep a stocked liquor cabinet at home, you're most likely a customer of these companies.
Despite a down economy, women and men still like to look good when out socially or at work. The largest cosmetics companies include Estee Lauder Companies Inc. (EL) and Coty Inc. (COTY), a major licensed brand manufacturer. Both of these companies have non-cyclical product portfolios that do well in weak economic conditions, in addition to luxury brands, which thrive in a strong economy. As previously mentioned Procter & Gamble and Unilever are also strong members of the beauty industry.
5. Death and Funeral Services
As the popular saying goes, the only two things that are certain in life are death and taxes. While no one can buy stock in the Internal Revenue Service, investors can purchase shares in companies that profit from death-related services. Carriage Services, Inc. (CSV), Service Corporation International (SCI), and Matthews International Corp. (MATW) are three companies that make their revenues from life’s inevitable end. These companies provide caskets and funeral-related services, whereby their revenue tends to be recession-resistant.
It is worth noting that during the COVID-19 pandemic, which has claimed over 600,000 American lives, as of July 9, 2021, the funeral and death-related industry saw a spike in revenue.
The Bottom Line
Although companies never guarantee that companies will generate investment gains, some companies and industries tend to thrive in a recession. Perhaps, these companies can help make a well-balanced portfolio recession (and pandemic) resistant.