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5 Best Stocks for a Recession

29 Sep 2022

5 Best Stocks for a Recession | VI College

If you regularly check the news, one of the biggest buzzwords you hear economists mention a lot today is “recession.” But what exactly does the word mean?

According to Investopedia, “a recession is a significant, widespread, and prolonged downturn in economic activity.” In other words, when the economy doesn’t perform the way it’s expected to and a country’s overall financial shape isn’t ideal for businesses, then we can consider a recession taking place.

Is America facing a recession today? No, it’s not. But it isn’t unlikely.

To put it simply, we need to factor in numbers, and these numbers are usually provided by government agencies like the U.S. Bureau of Economic Analysis (BEA).

What happens during a recession? For starters, the price of commodities increases, and job stability becomes volatile for a lot of workers and sectors. While we can’t control the overall performance of the economy as individuals, what we can do is prepare for the worst.

Investing in dividend stocks is one way to go. Dividend stocks, as the term suggests, are stocks that guarantee a certain amount of dividend payouts to shareholders. There are numerous reasons why investors go for this stock type.

Firstly, it provides passive income. When you’re sure you’re getting a certain percentage from your investments, that’s considerably already half the job of what your investments are meant for—to generate profits.

Secondly, dividend stocks are substantially safer compared to value stocks, for example. Since dividend stocks mostly come from established corporations and branded businesses, it’s easier to assume growth.

Thirdly, dividend stocks allow you to reinvest your earnings. Should you opt to acquire more shares as opposed to cashing in your profits, you’re free to do so as well. When that happens, your earnings increase even more. It’s basic math: the more shares you own, the higher your profits are.

Nevertheless, you must still consider the risks involved with dividend stocks. For instance, companies may opt to change dividend policies overnight. Also, shareholders of dividend stocks are typically taxed twice. This is because businesses pay corporate income tax. And since dividend payouts are taken from earnings, shareholders will also have to share from tax deductions.

Let’s take a look at some of the best stocks for a recession in 2023.

1. Walmart Inc (NYSE:WMT)

Best Stocks for Recession - Walmart | VI College

    There are plenty of reasons to patronise Walmart, and its vast selection of consumer goods is just one of them. Arguably one of the most solid stocks during a recession, Walmart continues to be a staple solution to investors and shoppers alike. Not only does the retail brand boast a steady market base, but its e-commerce efforts are keeping up with the latest cloud-first trends, too.

    A stock currently sells at about $130 per share, and the company’s annual dividend yield is 1.69%. That said, growth investors looking for stocks that provide some extent of predictability will most probably find comfort in Walmart stock. With a 0.544% free cash flow revenue (FCF margin), there’s a lot of room for the business to expand. Still, its tenure in the industry is perfectly cemented, and its 3-year revenue growth of 3.76% only solidifies its growth over the last few years.

    2. McDonald's Corp (NYSE:MCD)

      Best Stocks for Recession - Mcdonalds | VI College
      Source: Atikan Pornchaiprasit / Shutterstock

      McDonald’s is one of the biggest fast-food chains in the world, and that’s a fact. Regardless of economic seasons, it’s also proven to rise above and dominate the market. At over $250 a share, it’s considerably pricier than a lot of stocks today. For context, you’ll need to shell out only a little over $160 a stock with Apple and only less than $20 with Wendy’s.

      Nonetheless, the iconic double cheeseburger makers have the numbers to back them up. Its operating margin is nearly 37.80%, proving that it’s a profitable asset people continue to support. Should a recession take place, rest assured that McDonald’s isn’t going anywhere. And even if it does, it’ll take more than a seasonal economic downturn to topple the fast-food giant. Its 2.16% annual dividend yield isn’t bad either!

      3. Kraft Heinz Co (NASDAQ:KHC)

      Best Stocks for Recession - Kraft Heinz | VI College
      Source: SSokolov / Shutterstock

        There is a long list of things people can’t live without and food is on top of the list. As a result, you can be confident that the popular consumer goods provider Kraft Heinz Co is one of the strongest among its contemporaries.

        But don’t take our word for it! Its annual dividend yield is an impressive 4.20%, and a 5.78% return on equity (ROE) also proves that the company’s shareholders enjoy steady profits. We can credit its aspirational numbers to how robust the demand for its products has been in the last decade as well.

        As a matter of fact, Kraft Heinz Co reports that its performance in Latin America has been its second-largest market in the world, trailing only after a close call among Canada and Australia. The company’s 12.54% FCF margin also continues to assure both new and seasoned investors, as this metric only proves that the FMCG giant has more than enough cash to get by. At less than $40 a share, there’s a lot you can expect here. But again, we encourage you to do your due diligence. At the end of the day, invest according to your risk tolerance.

        4. Procter & Gamble Co (NYSE:PG)

        Best Stocks for Recession - P&G | VI College
        Source: Niloo / Shutterstock

          We’re almost a hundred per cent sure that if you looked around your home today, you’re most likely to have at least one Procter & Gamble product somewhere in there. From Pringles to Pampers and Olay to Safeguard, the company has been an iconic force in global communities for over 180 years now—and for stellar reasons!

          The products they put out remain to be sought-after grocery items, making the umbrella corporation a name that’s hard to ignore. Its numbers are pretty solid too. With a 22.99% operating margin and a 16.92% FCF margin, not only does P&G’s prowess translate to solid sales, but its abundant flow of cash streams within the company also helps remind investors that the corporation is in good shape.

          Are you a dividend stock investor? You’ll be pleased to know that its annual dividend yield is 2.58%. If a recession were to happen at the beginning of next year, it’s only fair to speculate that P&G is prepared.

          5. Pfizer (NYSE:PFE)

          Best Stocks for Recession - Pfizer | VI College
          Source: guteksk7 / Shutterstock

            Ahh, Pfizer -- a brand that’s risen even more since the onset of the pandemic. Whether or not you’re the biggest believer in vaccines, there’s no denying how the consistent demand for boosters helps the company generate massive revenue. A whopping 33.00% operating income margin tells us that it makes great profits, even after raw materials and labour wages are accounted for.

            What’s more, an annual dividend yield of 3.46% is a huge number too. A 10.70% return on assets (ROA) also assures us that the pharmaceutical brand is making clever and creative use of its many assets. If this isn’t impressive enough, Pfizer’s 24.63% ROE should help you come to a conclusion.

            You don’t have to be a massive science geek to know that it’ll take more than a deadly virus to wipe away the New York-based biotechnology corporation.

            All in all, there is no shortage of stocks you can consider if a recession does happen any time soon. While the examples above all make for fantastic additions to your portfolio, we encourage you to do your due diligence and determine if your investing objectives align with the companies mentioned above.

            Fortunately, stock investments aren’t the only thing you can look into to better prepare for a financial crisis. There are numerous other practices you can build on to help you stay afloat.

            Tips to prepare for a recession

            Here are three things you can establish to ensure you’re prepared for rainy days.

            1. Prepare an emergency fund

              These days, peace of mind comes with a hefty price. To avoid crumbling into pieces and spiralling into unending debt, double up on your emergency funds while you still can. How much this figure costs can differ depending on your lifestyle and responsibilities, but we suggest that you save enough money that helps you cover at least 3 months’ worth of income.

              During a recession, unemployment rates rise. For you to still be able to live comfortably without a job—although we hope you never have to experience this—having enough money to pay for expenses while you’re on the lookout for your next primary source of income should definitely ease your anxiety.

              To find out how much your emergency fund should be, calculate your monthly rent, utilities, grocery estimates, and an extra thousand bucks for good measure. Once you figure out how much this is, work towards achieving this amount and save your money in a high-yield savings account.

              2. Widen streams of income

                There are countless side hustles you can pick up online today. While the majority of them may not make you the next Elon Musk (although we won’t rule that out), there are enough gigs on the internet you can explore to help you beef up your savings.

                When a recession hits, those without money are affected the most. To prevent this, taking on extra jobs is a good idea. These jobs vastly depend on what your skills are, but we suggest commodifying talents that come naturally to you. Freelance writing, website design, and illustrating digital sketches are things you can consider, to name a few.

                3. Invest in financial literacy

                  The market continues to take new shapes every day, and for us to remain knowledgeable about the latest finance trends, it’s important that we take the time to study the economy. While we’re not asking you to take complex Econ classes, you may want to read up on conversations about the stock market and cryptocurrency.

                  If these things overwhelm you, there are dozens of online courses you can resort to. If this isn’t enough, you’ll be delighted to know that multiple finance mentors are at your disposal on the internet. Establish what your financial goals are, and find a professional you can talk to about them.

                  Financial literacy courses may sound snobby to the average Joe, but we promise that this will only benefit you in the long run. The only way to stay updated is to stay educated—and many times, this requires effort.

                  Ultimately, a recession isn’t something we have control over. Nevertheless, we have the power to take charge of how tomorrow can look for us.

                  Are you interested in becoming more financially secure? Click here!


                  This article and its contents are provided for information purposes only and do not constitute a recommendation to purchase or sell securities of any of the companies or investments herein described. It is not intended to amount to financial advice on which you should rely.

                  No representations, warranties, or guarantees, whether expressed or implied, made to the contents in the article is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

                  We, 8VI Global Pte Ltd, disclaim any responsibility for any liability, loss, or risk or otherwise, which is incurred as a consequence, directly or indirectly, from the use and application of any of the contents of the article.