10 Best Investments During A Recession

insIn this article, we discuss 10 best investments during a recession.

The United States economy managed to steer clear of a recession due to a robust job market. However, this is typically one of the final aspects to weaken when interest rates rise. A consistent trend has emerged in such cycles – out of the last nine instances where the Federal Reserve increased rates, seven led to an economic recession. As per Darrell Cronk, who heads the Wells Fargo Investment Institute, the expectation is that a downturn will occur either in the latter half of 2023 or early 2024.

It is the second half of the year and the stock market has already started to see the recession effects, in line with what J.P. Morgan Research anticipates – the United States is likely to experience a gentle economic downturn by late 2023. This is attributed to the Federal Reserve’s cautious approach, leading to more stringent credit conditions, which in turn will gradually exert downward pressure on economic expansion. While many stocks have seen a downward trend, a few industries have benefited from this economic stress, making their specific stocks attractive investment options for global investors. Some of these include Utilities, Healthcare, Consumer Staples, Communication services, DIY, and related industries. The profits of these stocks are usually protected from fluctuations in economic cycles and changes in consumer confidence.

During a recession, utilities often benefit because their services, like electricity, gas, and water, are necessities that people continue to use regardless of economic conditions. Their stable demand and essential nature provide a consistent revenue stream. Healthcare remains essential, and demand for medical services remains relatively stable as well. Moreover, consumer staples like food, beverages, toiletries, and household items are considered necessities, and the segment is less affected by economic downturns, making companies in this sector more resilient. However, there might be a shift toward more cost-conscious purchasing, with consumers opting for store-brand items and value-oriented products. Communication services, including internet, phone, and media services, remain crucial for both individuals and businesses. Demand for these services can stay strong during a recession, especially as remote work and digital communication become more prevalent. Furthermore, during tough economic times, people might cut back on larger expenses like home renovations, leading to a boost in the do-it-yourself (DIY) industry.  

Reuters mentioned the July 2022 analysis of Michael Gapen, chief U.S. economist at Bank of America:

“A number of forces have coincided to slow economic momentum more rapidly than we previously expected. We now forecast a mild recession in the U.S. economy this year – In addition to fading of prior fiscal support, inflation shocks have eaten into real spending power of households more forcefully than we forecasted previously and financial conditions have tightened noticeably as the Fed shifted its tone toward more rapid increases in its policy rate.”

The current market performance can be a motivator for investors to consider the best investments during a recession. Ergo, investors looking to diversify their portfolios by investing in these stocks can check our list, which includes companies like UnitedHealth Group Incorporated (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT).

Our Methodology

We selected the best stocks to invest in during a recession based on hedge fund sentiment toward each stock. These stocks belong to sectors like consumer staples, utilities, healthcare, and auto repairs/home remodeling, as these sectors have historically thrived or remained steady during economic downturns. We have assessed the hedge fund sentiment from Insider Monkey’s database of 910 elite hedge funds tracked as of the end of the second quarter of 2023. The list is arranged in ascending order of the number of hedge fund investors in each firm.

Image by Gerd Altmann from Pixabay

Best Investments During A Recession

10. Constellation Brands, Inc. (NYSE:STZ)

Number of Hedge Fund Holders: 48

Constellation Brands, Inc. (NYSE:STZ) manufactures, imports, promotes, and distributes beer, wine, and spirits in countries such as the United States, Canada, Mexico, New Zealand, and Italy. On June 30, Constellation Brands, Inc. (NYSE:STZ) declared a quarterly dividend of $0.89 per share, in line with the previous quarter. The dividend was distributed on August 24, to shareholders of record on August 10. Based on historic trends, the consumption of alcoholic beverages increases substantially during economic recessions, making Constellation Brands, Inc. (NYSE:STZ) a top investment option at this time.

According to Insider Monkey’s second quarter database, 48 hedge funds were bullish on Constellation Brands, Inc. (NYSE:STZ), compared to 41 in the last quarter. Brandon Haley’s Holocene Advisors is the biggest stakeholder of the firm, with 796,935 shares valued at an estimated $196 million. 

Like UnitedHealth Group Incorporated (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT), Constellation Brands, Inc. (NYSE:STZ) is one of the best recession stocks to watch. 

Blue Hawk Investment Group made the following comment about Constellation Brands, Inc. (NYSE:STZ) in its Q2 2020 investor letter:

“Constellation Brands (STZ) – STZ bounced back significantly from a rough Q1 and is now up 73% from its low point in March – though still down 5% year-to-date. As we noted in last quarter’s letter, we could not find any fundamental reasons to meaningfully change our estimate of long-term value, and our decision to add to our position as it fell has so far turned out to be a good one. We believe that the market mispriced risks around the company’s exposure to restaurant and bar sales, as well as the impact of a temporary shutdown to beer production in Mexico. STZ over indexes to “off-premise” (non-bar/restaurant) sales relative to the rest of the industry, so a 75% reduction in bar/restaurant sales during the most recent quarter was nearly offset by just a 20% increase in off-premise. Modelo and Corona products continued to sell very well (aided by the recent launch of Corona Hard Seltzer), helping STZ to deliver better-than-expected results for the March-May fiscal quarter. Beer production also returned to normal levels in June before STZ suffered any notable out-of-stocks in popular products. The market has started to come back around to our view that Constellation Brands is positioned very well over the near, intermediate, and longer terms. We harvested some gains as the stock price came roaring back, but valuation remains below historical averages, and it is still a top-five holding in our portfolio (with good diversifying characteristics relative to the rest of our top positions).”

9. PG&E Corporation (NYSE:PCG)

Number of Hedge Fund Holders: 51

PG&E Corporation (NYSE:PCG) is involved in supplying and transporting electricity and natural gas to customers in the northern and central regions of California, USA. On August 7, UBS analyst Gregg Orrill raised PG&E Corporation (NYSE:PCG) stock to Buy from Neutral with a $21 price target, up from $19, noting that lower wildfire threats and constructive California regulations lend the company an optimistic outlook. PG&E Corporation (NYSE:PCG) is one of the best recession stocks to buy.

According to Insider Monkey’s second quarter database, 51 hedge funds were bullish on PG&E Corporation (NYSE:PCG), one down from the previous quarter. Dan Loeb’s Third Point is the top stakeholder of the firm with 54 million shares worth over $933 million.

Third Point Management made the following comment about PG&E Corporation (NYSE:PCG) in its Q1 2023 investor letter:

“Our strategy is to preserve liquidity and buying power to take advantage of markets when they “break”. While overall indices remain elevated, we are finding more chances to provide liquidity across all three asset classes in which we invest – credit, structured credit, and equity – opportunities which have been key drivers of performance for the fund. Our portfolio is balanced across industries with a focus on event-driven names including companies involved in spin-offs, significant cost-cutting, or other types of under-appreciated business transformation. PG&E Corporation (NYSE:PCG), which is still our largest position, continues to deliver strong performance, down 50bps in the first quarter but up 6.2% for the year to date after the Fire Victims Trust sold another 60 million shares in a block trade.”

8. O’Reilly Automotive, Inc. (NASDAQ:ORLY)

Number of Hedge Fund Holders: 52

O’Reilly Automotive, Inc. (NASDAQ:ORLY) functions as a retailer and provider of automotive aftermarket components, tools, materials, machinery, and add-ons within the United States and Mexico. On July 26, O’Reilly Automotive, Inc. (NASDAQ:ORLY) reported a Q2 GAAP EPS of $10.22, beating the Wall Street estimates by $0.14. The revenue of $4.07 billion increased 10.9% year-over-year, also topping market consensus by $60 million. During recessionary periods, the auto repair market becomes quite costly, causing most people to do minor fixes themselves. This usually leads to an increase in sales for automotive parts and tools, making O’Reilly Automotive, Inc. (NASDAQ:ORLY) one of the best recession stocks to invest in.

According to Insider Monkey’s second quarter database, 52 hedge funds were bullish on O’Reilly Automotive, Inc. (NASDAQ:ORLY), same as the previous quarter. Charles Akre’s Akre Capital Management is the top stakeholder of the firm with 1.11 million shares worth approximately $1.06 billion.

The London Company Large Cap Strategy made the following comment about O’Reilly Automotive, Inc. (NASDAQ:ORLY) in its second quarter 2023 investor letter:

“O’Reilly Automotive, Inc. (NASDAQ:ORLY) – ORLY outperformed during Q2 led by share gains in its Pro business. Despite macro uncertainties, demand remains strong as customers are prioritizing the repair and maintenance of vehicles. ORLY remains the gold standard for service, part availability, and logistics in this industry. ORLY has a strong balance sheet, and has a good record of effective share repurchase.

Reduced: O’Reilly Automotive (ORLY) – Reduced ORLY twice during Q2, reflecting strong recent performance that resulted in a relatively high valuation. ORLY remains well positioned for growth and leads the auto parts industry, which is fairly insulated from economic turbulence.”

7. Philip Morris International Inc. (NYSE:PM)

Number of Hedge Fund Holders: 54

Philip Morris International Inc. (NYSE:PM) is a tobacco enterprise striving to create a smoke-free future by developing a long-term product lineup that extends beyond the realm of tobacco and nicotine. On July 20, 2023, Philip Morris International Inc. (NYSE:PM) reported a Q2 non-GAAP EPS of $1.60, beating Wall Street estimates by $0.12. The revenue of $9 billion increased 14.9% year-over-year, surpassing market consensus by $290 million. Philip Morris International Inc. (NYSE:PM) is one of the best stocks to invest in during an economic recession, as tobacco and nicotine sales usually skyrocket. 

According to Insider Monkey’s second quarter database, 54 hedge funds were bullish on Philip Morris International Inc. (NYSE:PM), one down from the prior quarter. Terry Smith’s Fundsmith LLP is the largest stakeholder of the firm, with approximately 15.8 million shares worth $1.54 billion.

Ariel International Fund made the following comment about Philip Morris International Inc. (NYSE:PM) in its Q1 2023 investor letter:

“Finally, tobacco maker, Philip Morris International Inc. (NYSE:PM) declined in the period on concerns related to supply-chain disruptions resulting from the war in Ukraine, which we view as temporary. We believe the favorable economics and margin expansion associated with market share gains from the IQOS brand and Reduced Risk Products should yield value creation opportunities in the years ahead. Furthermore, at current trading levels, we think the company’s operating leverage, pricing power, and free cash flow profile offer a margin of safety.”

6. NextEra Energy, Inc. (NYSE:NEE)

Number of Hedge Fund Holders: 59

NextEra Energy, Inc. (NYSE:NEE) generates, transmits, distributes, and sells electric power, from sources like wind, solar, nuclear, coal, and natural gas, to both individual consumers and businesses in North America. On July 27, NextEra Energy, Inc. (NYSE:NEE) declared a quarterly dividend of $0.47 per share, in line with the previous quarter. The dividend was distributed to shareholders on September 15. Electricity is considered a necessity, and its demand tends to remain relatively stable even during a recession. This makes NextEra Energy, Inc. (NYSE:NEE) one of the best investments during a recession.

According to Insider Monkey’s second quarter database, 59 hedge funds were bullish on NextEra Energy, Inc. (NYSE:NEE), same as the last quarter. John Overdeck and David Siegel’s Two Sigma Advisors is a prominent stakeholder of the company. 

In addition to UnitedHealth Group Incorporated (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT), NextEra Energy, Inc. (NYSE:NEE) is one of the top recession investments to look out for. 

ClearBridge Investments made the following comment about NextEra Energy, Inc. (NYSE:NEE) in its Q3 2022 investor letter:

“NextEra Energy, Inc. (NYSE:NEE) is an integrated utility business with a regulated utility operating in Florida and the largest wind business in the U.S. NextEra’s regulated business includes Florida Power & Light, which serves nine million people in Florida. NextEra’s share price rose along with the passage of the U.S. Inflation Reduction Act, which considerably expands support for renewable energy.”

 5. The Home Depot, Inc. (NYSE:HD)

Number of Hedge Fund Holders: 68

The Home Depot, Inc. (NYSE:HD) is a retailer focused on home improvement. It offers a range of construction materials, home improvement products, items for landscaping and gardening, and decorative products. On August 17, The Home Depot, Inc. (NYSE:HD) declared a quarterly dividend of $2.09 per share, in line with the previous quarter. The dividend was distributed on September 14. During recessionary periods, people are driven towards DIY projects, essential repairs and maintenance of their properties, and smaller yet affordable home upgrades. This makes Home Depot, Inc. (NYSE:HD) one of the most sought-after recession stocks.

According to Insider Monkey’s second quarter database, 68 hedge funds were bullish on The Home Depot, Inc. (NYSE:HD), compared to 65 in the previous quarter. Israel Englander’s Millennium Management is a prominent position holder in the company. 

Madison Sustainable Equity Fund made the following comment about The Home Depot, Inc. (NYSE:HD) in its second quarter 2023 investor letter:

“The Home Depot, Inc. (NYSE:HD) celebrates 30 years of giving back. Team Depot was created in 1993 as a way of organizing associates who were eager to volunteer in their communities. For 30 years, Team Depot associates have worked side by side with non-profits around the United States. Focus areas include spending time with the elderly and activities with at-risk youth. Team Depot also improves the homes and lives of veterans and helps communities impacted by natural disasters.

During the quarter, Home Depot set a goal for battery-powered products to represent over 85% of outdoor lawn equipment sales in the U.S. and Canada by the end of fiscal 2028. Push lawn mowers and handheld leaf blowers and trimmers will run on rechargeable battery technology instead of gas. This will reduce 2 million metric tons of greenhouse gas emissions annually.”

4. The Procter & Gamble Company (NYSE:PG)

Number of Hedge Fund Holders: 74

The Procter & Gamble Company (NYSE:PG) offers branded consumer packaged goods on a global scale. Its operations are divided into five segments – Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care. On July 28, The Procter & Gamble Company (NYSE:PG) reported its fourth quarter results for fiscal year 2023. The company announced a non-GAAP EPS of $1.37, beating Wall Street estimates by $0.05. The revenue of $20.6 billion increased 5.5% year-over-year, surpassing market forecasts by $610 million. During a recession, consumers often cut back on dining out or entertainment spending. This can lead to an increase in at-home consumption, benefiting consumer packaged goods companies like The Procter & Gamble Company (NYSE:PG). 

According to Insider Monkey’s second quarter database, 74 hedge funds were bullish on The Procter & Gamble Company (NYSE:PG), one down from the last quarter. Terry Smith’s Fundsmith LLP is the leading position holder in the company. 

3. Walmart Inc. (NYSE:WMT)

Number of Hedge Fund Holders: 81

Walmart Inc. (NYSE:WMT) is a giant in global retail, wholesale, and related operations. It operates supercenters, hypermarkets, discount stores, cash and carry outlets, and warehouse clubs that operate under the Walmart and Walmart Neighborhood Market brands. On August 17, Walmart Inc. (NYSE:WMT) reported a Q2 non-GAAP EPS of $1.84, outperforming Wall Street estimates by $0.13. The revenue of $161.63 billion also went up by 5.9% year-on-year, surpassing market estimates by $2.35 billion. Walmart Inc. (NYSE:WMT)’s reputation for offering affordable prices makes it an attractive shopping destination for consumers looking to save money during tough economic times. This makes it one of the best recession stocks to monitor. 

According to Insider Monkey’s second quarter database, 81 hedge funds were bullish on Walmart Inc. (NYSE:WMT), as compared to 91 in the prior quarter. D E Shaw is the largest stakeholder of the company, with a position worth nearly $862 million. 

2. Johnson & Johnson (NYSE:JNJ)

Number of Hedge Fund Holders: 88

Johnson & Johnson (NYSE:JNJ) engages in the global research, development, manufacturing, and sale of diverse and innovative products within the healthcare sector. It is one of the best recession stocks to invest in. On July 20, Johnson & Johnson (NYSE:JNJ) reported a Q2 non-GAAP EPS of $2.80, beating Wall Street estimates by $0.18. The revenue of $25.53 billion increased 6.4% year-over-year, surpassing market expectations by $860 million.

As per Insider Monkey’s second quarter database, 88 hedge funds were bullish on Johnson & Johnson (NYSE:JNJ), as compared to 86 in the prior quarter. Ray Dalio’s Bridgewater Associates is a prominent position holder in the company, with 3.18 million shares worth $526.5 million. 

ClearBridge Large Cap Value Strategy made the following comment about Johnson & Johnson (NYSE:JNJ) in its first quarter 2023 investor letter:

“The tech-dominated quarter was a headwind for both defensive and cyclical sectors, with shares of health care holdings such as UnitedHealth Group (UNH), Elevance (ELV) and Johnson & Johnson (NYSE:JNJ) declining after a strong 2022.”

1. UnitedHealth Group Incorporated (NYSE:UNH)

Number of Hedge Fund Holders: 111

UnitedHealth Group Incorporated (NYSE:UNH) functions as a diversified healthcare enterprise within the United States. Its operations are divided into four segments – UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. Each segment caters to different consumer healthcare needs like health benefit plans, care delivery and management, healthcare software and information products, and pharmacy care services. On August 23, UnitedHealth Group Incorporated (NYSE:UNH) declared a quarterly dividend of $1.88 per share, in line with previous. The dividend will be distributed on September 19, to shareholders of record on September 11.

As per Insider Monkey’s second quarter database, 111 hedge funds were bullish on UnitedHealth Group Incorporated (NYSE:UNH), as compared to 116 in the last quarter. Rajiv Jain’s GQG Partners is the top shareholder of the firm with around 4.89 million shares valued at approximately $2.35 billion. 

Mairs & Power Growth Fund made the following comment about UnitedHealth Group Incorporated (NYSE:UNH) in its second quarter 2023 investor letter:

“Notable detractors to performance in the first half were US Bank (USB), Charles Schwab (SCHW), and UnitedHealth Group Incorporated (NYSE:UNH), which were down 22.09%, 31.65%, and 8.65%, respectively. Another detractor from relative performance was UnitedHealth Group, which was down 8.65%. However, we have a positive long-term view of the company, headquartered in Minnesota, and especially its potential when it comes to harnessing its vast amounts of patient data via AI. Additionally, its Optum unit, which provides technology and data-driven care delivery, has AI-enabled tools that can help healthcare providers drive more efficient and accurate care to patients.”

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Disclosure: None. 10 Best Investments During A Recession is originally published on Insider Monkey.