Many of Wall Street's top minds expect the U.S. to enter a recession at some point in 2023. For investors, this means seeking out the best recession-proof stocks to help protect their portfolios during a time of economic uncertainty.
But what is a recession? The traditional definition is two consecutive quarters of negative growth. Based on that, the U.S. is not currently in a recession, with fourth-quarter gross domestic product (GDP) data showing the economy grew at a 2.9% annualized rate in the final three months of 2022. This followed growth of 3.2% in Q3.
The U.S. might not be in a recession at the moment, but expectations are high that one could hit in 2023. The Wall Street Journal's most recent quarterly survey of economists suggests there is a 61% chance of a U.S. recession within the next year. While this is 2 percentage points lower than the previous quarter, it's still historically high. Kiplinger, for its part, has the odds of a recession in 2023 at about 60% at the moment.
In this kind of environment, the companies best-suited to survive, if not thrive, are defensive ones that provide products and services people simply can't live without.
Here, then, are nine of the best recession-proof stocks. Of course, some of the best stocks to buy during a recession might not be the greatest ones to hold once the U.S. and global economies have returned to normal. But all of them have loads of worth – to investors and consumers alike – when times are tight.
Data as of Feb. 1. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analyst ratings courtesy of S&P Global Market Intelligence, unless otherwise noted. Stocks are listed by analysts' consensus recommendation, from lowest to highest.
Philip Morris International
- Market value: $163.4 billion
- Dividend yield: 4.9%
- Analysts' consensus recommendation: 2.05 (Buy)
Regarding "sin stocks," Philip Morris International (PM, $105.39) did just fine during the Great Recession. In fact, that's when its stock started trading: Altria (MO) spun off its international business on March 27, 2008. As a result, shareholders got one new share of PM for every share of MO they owned. PM and most other major cigarette companies benefited from increased sales during the Great Recession.
The company has been working to counter the anti-smoking trend by replacing cigarettes with smoke-free products, such as its IQOS electronic device that heats tobacco instead of burning it. PM also claims IQOS reduces the levels of harmful chemicals ingested compared to cigarettes. The company says roughly 13.5 million people "have already stopped smoking and switched to IQOS."
In Q3 2022, its heated tobacco shipment volume increased 17% over the previous year to 27.5 billion units. Through the first nine months of fiscal 2022, they increased 10.9% to 77.1 billion.
In November, Argus Research analyst David Coleman upgraded PM stock to Buy.
"[PM] is seeking to become a mostly smoke-free (noncombustible) company by 2025 by phasing out cigarettes and replacing them with higher-margin alternatives such as HTP [heated tobacco products]. These reduced-risk products currently represent 30% of PM's net sales," Coleman wrote in a note to clients.
"PM has also acquired the rights to commercialize IQOS in the U.S. beginning on April 30, 2024, and is on track to acquire Swedish Match, a manufacturer of snus nicotine pouches, moist snuff, and related products."
The company's pivot away from cigarettes should pay dividends in good times and bad, making it one of the best recession-proof stocks to own.
- Market value: $52.7 billion
- Dividend yield: 0.9%
- Analysts' consensus recommendation: 1.89 (Buy)
The beauty of Dollar General's (DG, $235.61) business is that it tends to do well in good times and bad. But what makes it one of the best recession-proof stocks is that the discount retailer's value proposition – it sells most of its products on the shelves for $10 or less – gains traction in periods of economic uncertainty. At the same time, its store coverage of 18,818 locations across 47 states provides unparalleled convenience and time savings.
Despite having so many locations, Dollar General remains firmly in growth mode. In December 2021, it announced that it would open up to 10 stores in Mexico in fiscal 2022 (January 2023 year-end). These would be its first stores outside the U.S.
Additionally, DG said in its third-quarter press release in early December that it would open 35 Mexican locations in fiscal 2023. The first location in the municipality of Escobedo, Nuevo León, is currently under construction and should open in early 2023. The 35 stores will all be in the northern part of Mexico and operate under the My Super Dollar General banner.
As for U.S. store openings, Dollar General plans to open 1,050 new stores in fiscal 2023, do 1,200 remodels, and relocate 120 locations. That's slightly higher than its openings and remodels in 2022.
DG projects that it has 16,000 store opportunities in the U.S. in the years ahead. This includes 12,000 Dollar General locations, 3,000 pOpshelf stores (the company's nonconsumable banner), and 1,000 DGX stores, Dollar General's express concept.
It's got plenty of work ahead of it.
For 2022, Dollar General expects same-store sales growth of 6.5% at the midpoint of its guidance, with 7.5% growth in earnings per share to $3.23. That's based on annual capital expenditures of $1.5 billion.
As for dividends and share repurchases, DG paid out $372 million of the former and bought back $1.64 billion of its stock through the nine months ended Oct. 31. It expects to have repurchased $2.75 billion for all of 2022.
- Market value: $50.6 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.88 (Buy)
O'Reilly Automotive (ORLY, $807.93) is one of the largest sellers of aftermarket automotive parts in the U.S. The company had 5,910 stores in the U.S. as of Sept. 30, along with 28 stores in Mexico under the ORMA banner.
ORLY has done a good job balancing its revenues between do-it-yourself (DIY) customers and professional shops; the business model has held ORLY in good stead for decades. Through the first nine months of 2022, O'Reilly's revenues were split 55% to DIY customers and 45% to owners of automotive repair shops. And what makes ORLY one of the best recession-proof stocks is that sales to DIY customers may increase during an economic slowdown as people save money by doing their own repairs.
The company's stock is one of Wall Street's favorite selections from the Russell 3000 Auto & Auto Parts Index, which lost almost 40% in 2022. According to Barron's, ORLY is one of the five most popular auto stocks, with 71% of analysts giving it a Buy rating. That's even more significant because Barron's only considered profitable companies.
In the three months ended Sept. 30, 2022, O'Reilly had a 7.6% increase in same-store sales – up 31.2% compared to Q3 2019 – and a 14% increase in earnings to $9.17 per share. For all of 2022, it expects same-store sales growth of 5.0% at the midpoint of its guidance with total revenue of $14.2 billion and $32.60 a share in earnings.
Its free cash flow, which companies use to return capital to shareholders, is expected to be between $1.8 billion and $2.1 billion.
Wedbush analyst Seth Basham is generally bullish about O'Reilly's growth, despite giving it a Neutral (Hold) rating and an $820 target price.
"ORLY is a well-oiled machine, delivering superior availability and service at a fair price to auto parts customers, consistently expanding its footprint and resulting in top-notch sales growth, high returns on capital and continued return of capital to shareholders," Basham says.
Over the past decade, O'Reilly's stock has an annualized total return of 24%, nearly double the entire U.S. market. As a result, ORLY should hold its own and earn its place among stocks to invest in during a recession.
- Market value: $195.0 billion
- Dividend yield: 2.2%
- Analysts' consensus recommendation: 1.84 (Buy)
Every business that lives through a recession tends to survive through innovation and moxie. In the case of McDonald's (MCD, $266.27), which is so big that it probably doesn't fear much, we're likely to see a few new tricks out of a company that has always been well ahead of the curve.
McDonald's opened almost 600 stores in 2008. Further, its 2008 sales were higher than both 2006 and 2007. Between December 2007 and June 2009, the Dow Jones stock delivered a total return of 2.5%, considerably higher than the 35% loss for the S&P 500.
Americans traded down in the Great Recession. McDonald's was ideally positioned to benefit from this trend.
"In a recession, people eat out less and at home more frequently. And when they eat out, they eat at cheaper places," Slate contributor Daniel Gross wrote in August 2009. "McDonald's is so cheap, efficient, pervasive and convenient that it was a viable alternative to casual restaurants like Ruby Tuesday and to cooking at home. Investors, like diners, angled toward McDonald's and away from Ruby Tuesday during the recession."
Whether we are in a recession is debatable. However, the inflationary times we live in suggests McDonald's remains an excellent defensive play.
Early in January, CEO Chris Kempczinski issued a company-wide memo outlining changes coming to the Golden Arches, including job cuts. These cuts will make the company more efficient and productive as it accelerates restaurant openings.
"Today, we're divided into silos with a center, segments, and markets," Kempczinski wrote in the memo, as reported by CNBC. "This approach is outdated and self-limiting – we are trying to solve the same problems multiple times, aren't always sharing ideas and can be slow to innovate." The company will release more information about the store openings and job cuts by early April.
Happily, McDonald's had a solid fourth-quarter. The company reported earnings of $2.59 per share and revenue of $5.9 billion, up 26% and 5% year-over-year, respectively, excluding foreign currency changes. Global same-store sales were up 12% in the final three months of 2022, with double-digit growth seen across all segments.
- Market value: $229.8 billion
- Dividend yield: 0.7%
- Analysts' consensus recommendation: 1.81 (Buy)
During the last recession, analysts worried about how many members Costco Wholesale (COST, $517.91) would be able to retain. However, it did better than expected. In 2007, Costco boasted 27,500 total primary cardholders. Two years later, it finished its fiscal year with 30,600 primary cardholders – an 11.3% gain.
"There were expectations that people would be willing to let their memberships expire, but the numbers have held up quite well," Morningstar retail analyst R.J. Hottovy said in January 2010.
Among retailers, Costco remains one of the best recession-proof stocks.
In the five weeks ended Jan. 1, Costco saw its same-store sales increase 5.5%. Excluding fuel and currency, they rose 7.3%, 270 basis points higher than in November. In addition, its net sales increased 7.0% to $23.8 billion. That's on top of a 5.7% increase the previous month.
By country, excluding fuel and currency, same-store sales were up 6.4% in the U.S., 10.9% in Canada, and 9.1% in its other international markets.
"We believe these results help support a membership fee increase within the next six to 12 months, along with strong renewal rates (+92% in U.S./Canada) and signs that inflation is cooling, including gasoline prices, which are down more than 30% from the June 2022 high," said CFRA Research analyst Arun Sundaram (Hold).
In the company's fiscal Q1 2023 conference call, Chief Financial Officer Richard Galanti said that an increase in the Costco membership cost was coming. It was just a matter of time, although he said the retailer is prepared to wait several months before doing so.
Costco last raised its membership fees in June 2017. At the time, it had 48.6 million paid members. A year later, it had 50.9 million paid members despite the $5-$10 increase in membership fees.
It's unlikely any new hike will stop people from signing up. On the contrary, in a recession, it might even accelerate memberships.
- Market value: $390.1 billion
- Dividend yield: 1.6%
- Analysts' consensus recommendation: 1.77 (Buy)
Back in 2008, Slate magazine wondered why Walmart (WMT, $144.67) was thriving while the economy was tanking. The answer: Consumers could no longer afford to trade up; they were forced to survive by trading down. And this is what makes WMT one of the best recession-proof stocks.
Case in point: During the Great Recession, which lasted from December 2007 to June 2009, Walmart's stock delivered 9% on a total-return basis (price plus dividends). By comparison, the S&P 500 lost 35% over the same period.
Walmart was a prime beneficiary of high inflation in 2022, too. In the retailer's third quarter, its grocery business saw double-digit year-over-year comparable sales growth. WMT also saw an increase in food units sold in the third quarter. Overall, U.S. same-store sales in Q3 rose 8.2%, and were up 17.4% on a two-year stacked basis.
"Walmart U.S. continued to gain market share in grocery, helped by unit growth in our food business," said CEO Doug McMillon stated in WMT's third-quarter press release. "We significantly improved our inventory position in Q3, and we'll continue to make progress as we end the year."
Two things happened in calendar 2022 that benefited Walmart.
First, customers traded down to its private brands. As a result, the retailer's private brand penetration in the third quarter increased by 130 basis points (a basis point = 0.01%). Areas where this was especially evident include meat, baked goods, and baby and dog food.
Second, it gained a larger share of wealthier customers, or those earning more than $100,000 annually. Walmart will likely continue to see more high-income shoppers in its store as long as inflation remains persistently high.
And improving grocery sales are not Walmart's only area of strength. Others include growing ad and digital sales.
A prime move in the past year on the digital front was to merge the Walmart grocery shopping app with the Walmart.com app into one integrated platform with more than 350 million items available, greatly enhancing the store's online shopping experience. And on Jan. 20, 2023, the company launched Walmart Business, an e-commerce site dedicated to businesses. The service provides more than 100,000 items for small and medium-sized businesses.
Recession or not, Walmart's business is poised to perform well in 2023.
- Market value: $74.8 billion
- Dividend yield: 2.5%
- Analysts' consensus recommendation: 1.72 (Buy)
EOG Resources (EOG, $127.29) is a Houston-based oil and gas producer. The company was created by Enron in 1987 when the disgraced energy giant merged its InterNorth and Houston Natural Gas units to form the Enron Oil & Gas Company. In 1989, Enron sold off stock in the oil and gas unit to raise $200 million in capital for the parent. In August 1999, Enron lowered its stake from 54% to 17%, enabling EOG to become an independent producer.
Fast forward to now. The company's business is very healthy. In the third quarter, EOG's adjusted net income was $2.18 billion, 35.0% higher than Q2 and 72.4% better than the year prior. In addition, its free cash flow, which it uses to buy back shares and pay out dividends, was $2.27 billion, 104% of its adjusted net income. That's always a good sign.
And EOG is optimistic about its future too. "EOG continues to get better. The decision to increase the regular dividend by 10 percent reflects our confidence in EOG's future. EOG is well positioned to improve returns going forward from an existing asset base of low-cost-of-supply wells, augmented by a growing roster of new emerging plays," CEO Ezra Yacob stated in its Q3 2022 press release.
The company's regular and special dividends ought to remain attractive to investors seeking out not only the best energy stocks, but also the best recession-proof stocks.
In 2022, EOG paid out a total of $3 in regular quarterly dividends, and an additional $5.80 in special cash dividends, for a total payout of $8.80 a share. Based on its current share price, that's a 7% yield.
In 2020, EOG produced 753,800 barrels of oil equivalent per day (MBoed). In 2021, it jumped 10%, to 828,900. In 2022, the company projects production of at least 903,300 MBoed, 9% higher year-over-year.
This ought to translate into further special cash dividends in 2023.
- Market value: $122.4 billion
- Dividend yield: 0.7%
- Analysts' consensus recommendation: 1.64 (Buy)
Intuit (INTU, $435.55) has some of the best known brands in the fintech industry, including QuickBooks, TurboTax, Mailchimp and Credit Karma.
Together, the company expects revenue to hit at least $14.04 billion in fiscal 2023 (July year-end), and grow by 11% at the midpoint of its guidance. On the bottom line, Intuit sees earnings per share up 16% at the midpoint to $13.74.
Intuit's shares took a hit in early November when the company announced that hiring at Credit Karma would be paused to account for a potential softening of the economy. But, like many growing businesses, it doesn't mean it has stopped hiring altogether. Instead, it will be much more judicious about the job offers it puts out there until it has greater clarity about the economic landscape in 2023.
Evercore analyst Kirk Materne said at the time of Credit Karma's announcement and subsequent correction in INTU stock that he felt the selloff was an overreaction to the news. The analyst has an Outperform (Buy) rating and a $505 target price on Intuit, 20% higher than where it's currently trading.
On Dec. 1, 2022, Intuit announced that it would acquire SeedFi, the company behind Credit Builder. Intuit's Credit Karma business has worked with SeedFi to help people with little or no credit to get some while increasing their savings.
The partnership enabled the average Credit Builder user to boost their credit score by 21 points in just 30 to 45 days. Under Intuit's ownership, Credit Builder will be an important part of Credit Karma Money.
INTU isn't the cheapest option among recession-proof stocks. It currently trades at 30.7 times forward earnings. While that's high relative to other fintech stocks and the broader market, it's less than the company's five-year average of 37.5.
Service Corporation International
- Market value: $11.4 billion
- Dividend yield: 1.5%
- Analysts' consensus recommendation: 1.25 (Strong Buy)
A total of 1.1 million people in the U.S. have succumbed to COVID-19 over the past three years, so it's hard not to think of funerals and the deathcare industry. Early in the pandemic, funeral homes in New York City were overwhelmed by the number of clients they were dealing with due to this crisis.
While COVID-related deaths have slowed, Service Corporation International (SCI, $74.25), an owner of more than 1,900 funeral homes and cemeteries in 44 states and eight Canadian provinces, should be able to navigate any potential recession that surfaces in 2023.
In June 2019, as recession talk was heating up, Bank of America analyst Joanna Gajuk suggested that companies like Service Corp only suffered a "slight pullback" in its business during the Great Recession. The reasoning? Roughly 75% of funeral home clients who pay for funeral arrangements ahead of time pay a lump sum. In addition, 40% to 50% pay ahead of time for cemetery plots, also in one lump sum.
In November, Service Corporation reported third-quarter results that exceeded management's expectations. As a result, it raised its guidance for 2022 earnings by 20 cents at the midpoint, to $3.70 a share. However, its earnings and revenues in the nine months ended Sept. 30, were down from 2021, due to fewer COVID-related deaths.
Truist Securities analysts issued a report about Service Corporation in early December. The firm has a Buy rating and a $78 price target on SCI stock.
Truist suggested in its report that over the next 15-20 years, cremations will represent 75% of all deaths, up from 60% today. That could reduce SCI's EBITDA (earnings before interest, taxes, depreciation and amortization) profit slightly in future years. However, the analysts remain positive about SCI's position within the industry.
Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he's a keen student of business history. Married and now living in Halifax, Nova Scotia, he's also got an interest in equity and debt crowdfunding.
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