An increasing number of macroeconomic indicators are confirming what the market most feared; a possible recession that continues to draw nearer. Levels are at their highest in decades, and the supply chain breakdown further diminishes any optimistic outlook. This pessimism and gloom have permeated all areas of the economy, including financial markets. Investors, however, find themselves in an interesting position, one that presents an opportunity to sail through this recession with the right choices made. With a solid, recession-proof investment portfolio, investors can adequately safeguard their net worth, and quality of life from being compromised, as a result of these wider economic uncertainties. The key to building up such a portfolio, of course, is to ensure a good mix of stocks that tend to thrive during such conditions. This article presents the five best Recession Stocks that could safeguard your capital during the oncoming recession.
Recession Stock #1: WEC Energy Group
The first stock we present is the US utilities giant, WEC Energy Group Inc. (NYSE: WEC). The company provides natural gas, electricity, and renewable energy, through its various subsidiaries, and holds a market capitalization of almost $32 billion. The utilities industry is typically seen as a favorite amongst retirement investors and those with a financially conservative outlook. This is in large part due to the stability offered by energy companies, as well as dividend income and steady growth. It is these features that make the industry ideal to turn towards during the fears of a recession.
WEC currently stands as the best investment opportunity in the utilities sector. For one, the company’s dividend yield presently stands at over 7%, which is phenomenal for an energy company. The stock is a clear money-maker that would allow investors to thrive in conditions where they are faced with hard inflation.
Moreover, the company’s financial trends make its stock quite promising to hold on to. It has benefited from the prevailing inflationary environment, causing both revenue and earnings to see a massive jump. This is precisely the type of stock you want your capital parked in during tough times. A stock that is well suited to profit during these circumstances. What we also like about WEC is its wider sustainability, in its commitment to renewable energy. This is a global trend that continues to see momentum, which makes WEC great to hold for the long term. For these reasons, we strongly believe WEC is not a stock that investors should overlook during this recession.
Recession Stock #2: Brookfield Infrastructure Partners
The second stock on our list is Brookfield Infrastructure Partners LP, (NYSE: BIP). The company is in the multi-utilities industry, whilst also being at the forefront of both transport and digital data infrastructure. With its involvement in operational electricity and natural gas transmission, track, train, and motorway transport, as well as telecom and fiber optic networks, BIP has diversified itself to some of the most stable, rock-solid areas of the economy.
This stable and sustainable business model is one that has consistently allowed Brookfield Infrastructure to bear fruit. In just its recent quarter, the company saw its revenue grow 26% on a year-on-year basis. Its funds from operations also saw an impressive 15% climb. Results of this nature are highly promising in a context where the wider market braces itself for a business slowdown.
BIP is a stock you cannot go wrong with, especially in a recession context. Across all its segments, the company excels in asset management. Brookfield Infrastructure identifies ideal asset investment opportunities at lower multiples and expertly manages them to achieve phenomenal levels of capital payback. Following this, the company strategically sells these assets at impressive premiums, and thus boosts its growth and financial sustainability. A recessionary environment provides a fresh opportunity for this strategy to deliver success.
Following this robust strategy, BIP has grown remarkably by nearly 400% since its inception in 2009. The company has also been generous in sharing this growth and profitability with its shareholders. Since its inception, long-term distributions have grown by a compound annual growth rate of 10%. This makes the stock optimal to recession-proof any investor’s portfolio.
Recession Stock #3: American Tower Corporation
Up next, we present the REIT, American Tower Corporation (NYSE: AMT), the telecommunications giant. On a global scale, AMT is definitely one of the largest functioning REITs out there. American Tower has a market cap of $120 billion and holds a portfolio of almost 220,000 communication sites across the globe.
The future for AMT looks increasingly bright. In the decade that followed 2010, demand for mobile internet has surged by a factor of almost 96. This trend is only likely to speed up as the world continues its digital transition in the post-Covid status quo where e-commerce and remote work continues to dominate the mainstream. AMT, which operates at such a massive scale, is ideally positioned to capture the gains coming from these global trends.
The company has enjoyed tremendous growth in recent years, owing to its stellar business model. It offers its clients flexibility in how to utilize the leased data sites, which are in line with their digital data requirements. Through its global communications network, it is able to provide the highest data speeds at the lowest costs, which delivers it a tremendous competitive advantage. This has not only caused the company impressive organic growth over the years but also results in robust cash flows, despite the wider macroeconomic slowdown.
In addition to this organic growth, American Tower has increasingly been expanding through acquisitions. These purchases of telecommunications and digital infrastructure companies have been strengthening AMT’s global network, and further enhancing its efficiency. Recent acquisitions have also expanded the AMT market to include countries in Latin America and the Asia Pacific region. The stock clearly has all the great markings of an investment to take shelter in amidst a macroeconomic slowdown.
Recession Stock #4: The 3M Company
The fourth stock on our list is the 3M Company (NYSE: MMM). 3M operates as a diversified tech company, with four core segments. These include healthcare, transportation and electronics, safety and industrial, as well as its consumer segment. In the bear market conditions experienced this year, 3M was one of the stocks that took a heavy beating. Where the wider S&P 500 index fell by almost 10%, 3M fell by nearly 36% in the last year.
However, when others react in a panic, we see an opportunity. In the mass selloff that had driven down the price of 3M, its valuation alone screams that the stock is a strong buy. Its trailing dividend yield has been pushed up to almost 5%, whilst its forward earnings yield forecast is nearly 9%. In comparison to the wider tech industry, these figures are extremely impressive.
Moreover, 3M is pretty well positioned to ride an impressive growth wave in the following years. The expected tailwinds that analysts foresee in both automation and electrification would be crucial for the 3M company. This would further be boosted by the semiconductor shortage being alleviated, a trend that already seems to be gradually underway.
A dirt-cheap stock like 3M, which is on the verge of a rapid rise, is a rare gem that cannot be ignored. For those looking to glide through a recession, this is the exact sort of rare gem to buy and hold.
Recession Stock #5: Public Storage
The final stock on our list, but far from being the least is Public Storage (NYSE: PSA). Public Storage is a REIT, which offers self-storage facilities across the United States. We here at Stocks Telegraph believe that PSA is a great recession buy for your portfolio.
For one, the stock offers all the benefits that any REIT does during conditions of inflation. As the prices of commodities across the economy continue to climb, so too would that of the Public Storage investment trust. Moreover, as these costs climb, the revenue of the REIT, and ultimately the income attributable to its shareholders climb high.
PSA in particular stands well to see a climb of epic proportions in the coming years. For one it’s a giant in its industry, valued at above $55 billion. Its biggest competitor, EXR has a comparable figure of a mere $23 billion. The total number of storage properties by PSA presently stands at almost 3000.
Amidst the wider market trends, demand for self-storage had been seen as strongly resilient. As demand for housing falls with the worsening economic crisis, households are likely to turn to self-storage for their excess belongings. PSA has been expanding quite a bit since 2019, which indicates its readiness to meet this surging demand, which will continue to climb in a recession context. In just three years, the REIT spent $7.5 billion in acquisitions, development, and redevelopment. This amount is equivalent to a whopping 15% of its present market value. The strategy strengthens the company’s financial longevity and boosts its prospects of thriving in a recession
Conclusion
Historical records show that whenever a recession hit the US economy, a handful of stocks thrived against the downfall of the wider market. With the fears of an oncoming recession, once again dominating investor discourse, market participants are once again out in the search for the most resilient recession-proof stocks to latch on to. The stocks presented in this article, each hold the inherent capability to thrive during periods of economic difficulty. In turn, holding each of these stocks offers investors the opportunity to sail through the looming recession.