In this article, we discuss 10 recession-proof stocks to buy and hold.
With inflation at a 40-year high, the Russia-Ukraine war and resultant energy crisis, the risk of a recession is looming on the horizon. According to Bloomberg, Goldman Sachs analysts headed by chief economist Jan Hatzius have slashed growth potential for US GDP to 1.75% from 2%. The team also implied that the chances of recession as indicated by the yield curve are 20%-35% in the next year.
Although the US trade with Russia and Ukraine accounts for less than 0.05% of the total GDP, the public has experienced indirect hits in terms of higher prices, supply chain shortages, oil crisis, and stock market uncertainty – all of which have shaken consumer confidence.
“Recession is Imminent”
David Rosenberg, the principal strategist of Toronto-based Rosenberg Research & Associates Inc, stated on March 16 that in an attempt to beat the US inflation issue, the Fed will inadvertently push the economy into a recession. The US economy is already slowing down, and Rosenberg recalled how it took two recessions in 1981 and 1982 to resurrect the market from the clutches of a decade-long inflationary period.
Rosenberg further observed that the housing market and stock market are both in a bubble. He also cited the ADP national employment report that showed a contraction in employment in the small-business sector during February, while large-scale businesses were still hiring. The small-business segment is a realistic indicator of the economic conditions according to David Rosenberg, and it is “telling you that recession is imminent”.
Some of the notable recession-proof plays in this economy include The Procter & Gamble Company (NYSE:PG), UnitedHealth Group Incorporated (NYSE:UNH), and Dollar General Corporation (NYSE:DG), among others discussed extensively below.
Photo by Austin Distel on Unsplash
Our Methodology
We picked stocks from the sectors which have historically proven to be recession-proof, such as consumer staples, healthcare, tobacco, food processing, and retail. We ensured that all stocks in this selection received positive analyst ratings recently, and the companies were popular among the smart money.
Data from 924 elite hedge funds tracked by Insider Monkey during the fourth quarter of 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Recession-Proof Stocks to Buy and Hold
10. British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Holders: 18
British American Tobacco p.l.c. (NYSE:BTI) is a multinational producer and distributor of tobacco and nicotine products, based in London. Some of its famous brands include Dunhill, Lucky Strike, Pall Mall, Rothmans, Camel, and Newport.
Morgan Stanley analyst Rashad Kawan lowered the price target on British American Tobacco p.l.c. (NYSE:BTI) to £3,780 from £3,820 and kept an Overweight rating on the shares on March 17. The tobacco sector has historically outperformed amid recessions. As unemployment rises in recessionary periods, individuals turn to cigarettes and alcohol to drown their worries, which bodes well for stocks like British American Tobacco p.l.c. (NYSE:BTI).
On February 17, British American Tobacco p.l.c. (NYSE:BTI) declared a $0.735 per share quarterly dividend, a 1.4% increase from its prior dividend of $0.725. The dividend is payable on May 9, to shareholders of record on March 25. The stock yields 7.09% as of March 18.
The company announced on March 11 its exit from Russia amid the war, and British American Tobacco p.l.c. (NYSE:BTI) consequently revised its guidance for 2022. Now, the company expects revenue growth of 2% to 4% and mid-single figure adjusted diluted EPS growth. British American Tobacco p.l.c. (NYSE:BTI) disclosed that Ukraine and Russia accounted for 3% of the total revenue in 2021.
A total of 18 hedge funds were long British American Tobacco p.l.c. (NYSE:BTI) in Q4 2021, up from 9 funds in the quarter earlier. Rajiv Jain’s GQG Partners is the leading shareholder of British American Tobacco p.l.c. (NYSE:BTI), with more than 15 million shares worth $567.7 million.
In addition to The Procter & Gamble Company (NYSE:PG), UnitedHealth Group Incorporated (NYSE:UNH), and Dollar General Corporation (NYSE:DG), British American Tobacco p.l.c. (NYSE:BTI) is a notable defensive play against recession.
9. Diageo plc (NYSE:DEO)
Number of Hedge Fund Holders: 19
Diageo plc (NYSE:DEO) sells alcoholic beverages worldwide, with a product portfolio consisting of scotch, whisky, gin, vodka, rum, liqueur, wine, and tequila. The company has multiple brands under its domain, including Johnnie Walker, Crown Royal, Bulleit and Buchanan, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness.
The beverage and alcohol industry is generally considered to be recession-proof, and while beer sales tend to decline, volumes for hard liquor go up. This makes Diageo plc (NYSE:DEO) a reliable stock to hold in the current market environment.
Diageo plc (NYSE:DEO) on February 23 declared a £0.2936 per share interim dividend, an increase of 5% from its prior dividend. The dividend will be paid on April 12, for shareholders of record February 25.
Diageo plc (NYSE:DEO) posted on January 27 a 1H non-GAAP EPS of £0.85, beating consensus by £0.05. The company’s revenue of £7.96 billion was up 15.9% year-over-year, surpassing estimates by £290 million.
JPMorgan analyst Celine Pannuti upgraded Diageo plc (NYSE:DEO) on March 17 to Overweight from Neutral with an unchanged price target of £4,350. According to the analyst, Diageo plc (NYSE:DEO) is positioned to outgrow its peers in the United States, with more premium pricing, a solid tequila range, and strong investments. The analyst believes that Diageo plc (NYSE:DEO)’s U.S. portfolio will experience organic sales and EBIT growth will be at the upper end of the announced guidance.
Among the hedge funds tracked by Insider Monkey, Nicolai Tangen’s Ako Capital is the largest shareholder of Diageo plc (NYSE:DEO), with 1.7 million shares worth $382.6 million. Overall, 19 hedge funds were bullish on Diageo plc (NYSE:DEO) at the end of December 2021.
Here is what Weitz Investment Management has to say about Diageo plc (NYSE:DEO) in its Q1 2021 investor letter:
“We sold Diageo after twelve years of very profitable ownership. The global spirits company has done a fine job of growing earnings, and the stock has enjoyed an extra boost from substantial, multiple expansions along the way. While the business is in good hands, we think a repeat of our mid-double-digit annualized return experience is far less likely. We simply see better risk/reward profiles in the Fund’s other quality holdings.”
8. Unilever PLC (NYSE:UL)
Number of Hedge Fund Holders: 23
Unilever PLC (NYSE:UL) was incorporated in 1894 and is headquartered in London, operating via beauty and personal care, foods and refreshment, and home care segments. The company sells its products under multiple brands, including Ben & Jerry’s, Knorr, Magnum, Wall’s, Axe, Dove, Lifebuoy, Lux, Rexona, Sunsilk, Hellmann’s, and Vaseline.
As recession indicators flare up in the economy, companies like Unilever PLC (NYSE:UL) are positioned to benefit as spending on essential consumer products does not diminish during a recession.
On March 14, Bernstein analyst Bruno Monteyne upgraded Unilever PLC (NYSE:UL) to Market Perform from Underperform. The analyst cited valuation for the upgrade after the recent pullback in shares.
Unilever PLC (NYSE:UL) on February 23 declared a $0.482 per share quarterly dividend, a 2.2% decrease from its prior dividend of $0.493. The dividend will be paid on March 22, for shareholders of record February 25.
Gardner Russo & Gardner is the leading shareholder of Unilever PLC (NYSE:UL) as of Q4 2021, with 8.50 million shares worth $457.2 million. Overall, 23 hedge funds reported owning stakes in Unilever PLC (NYSE:UL), up from 17 funds in the prior quarter.
Here is what Fundsmith Equity Fund has to say about Unilever PLC (NYSE:UL) in its Q4 2021 investor letter:
“Unilever PLC (NYSE:UL) seems to be laboring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business. The most obvious manifestation of this is the public spat it has become embroiled in over the refusal to supply Ben & Jerry’s ice cream in the West Bank. However, we think there are far more ludicrous examples which illustrate the problem. A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches). Although Unilever had by far the worst performance of our consumer staples stocks during the pandemic, we continue to hold the shares because we think that its strong brands and distribution will triumph in the end.”
7. Tractor Supply Company (NASDAQ:TSCO)
Number of Hedge Fund Holders: 31
Tractor Supply Company (NASDAQ:TSCO) is a Tennessee-based home improvement retailer that provides tools and supplies for agriculture, garden maintenance, livestock, and pet care. The company sells mainly to recreational farmers, ranchers, and people who own lands.
Tractor Supply Company (NASDAQ:TSCO) is a recession-proof stock given that many people try to benefit from the lower interest and mortgage rates during recessionary periods to purchase and remodel homes. In addition to that, land owners tend to return to ranching during rampant unemployment, increasing demand for products of companies like Tractor Supply Company (NASDAQ:TSCO).
On January 27, Tractor Supply Company (NASDAQ:TSCO) declared a $0.92 per share quarterly dividend, a 76.9% increase from its earlier dividend of $0.52. The dividend was distributed on March 8, to shareholders of record on February 21.
Oppenheimer analyst Brian Nagel upgraded Tractor Supply Company (NASDAQ:TSCO) on March 18 to Outperform from Perform with a $270 price target. The analyst stated that Tractor Supply Company (NASDAQ:TSCO) is “one of the best run, most optimally-positioned, still expanding retail chains, within discretionary”. While the analyst believes that Tractor Supply Company (NASDAQ:TSCO)’s business model strengthened during the COVID-19 pandemic, the business still faces “fortifying macro tailwinds” including higher fuel prices and demographic shifts. He indicated the “promising” productivity enhancing initiatives and a “still compelling” share valuation for the upgrade.
Select Equity Group is the leading shareholder of Tractor Supply Company (NASDAQ:TSCO), with 2.30 million shares worth roughly $549 million. Overall, 31 hedge funds were bullish on the stock at the end of December 2021.
Here is what Wedgewood Partners has to say about Tractor Supply Company (NASDAQ:TSCO) in its Q4 2021 investor letter:
“Tractor Supply contributed favorably to performance during the quarter. Demand from the Company’s niche, affluent rural customer base continues to surge in a post-COVID world with comparable store sales running over +40% higher compared to pre-pandemic (2019) levels. Tractor Supply is seeing growth across all channels, from its website to e-commerce that is fulfilled by its 2000-store fleet to regular in-store traffic. The Company is also managing inflation and supply chain disruptions extremely well, passing through nearly +7% of inflation on consumable goods and managing a quarterly inventory in-stock rate that was actually higher than pre-pandemic. Tractor Supply is an exceptional retailer, and we continue to hold it as a top position.”
6. Bunge Limited (NYSE:BG)
Number of Hedge Fund Holders: 38
Bunge Limited (NYSE:BG) was founded in 1818 and is headquartered in St. Louis, Missouri, operating as an agribusiness and food company worldwide. The food and agriculture sectors are widely considered to be recession-proof, since people consume homemade meals and avoid dining out, increasing sales volumes for businesses like Bunge Limited (NYSE:BG).
Bunge Limited (NYSE:BG) on February 24 declared a $0.525 per share quarterly dividend. The dividend is payable on June 2, to shareholders of record on May 19. The stock yields roughly 2% as of March 18.
In its Q4 earnings report, published on February 9, Bunge Limited (NYSE:BG) posted an EPS of $3.49, above consensus by $0.62. Revenue over the period jumped 32.30% year-on-year to $16.68 billion, surpassing market predictions by $1.19 billion.
Barclays analyst Benjamin Theurer raised the price target on Bunge Limited (NYSE:BG) to $120 from $110 and kept an Overweight rating on the shares on February 14. The analyst projects “another solid year” for Bunge Limited (NYSE:BG) after the management guided for earnings per share to reach at least $9.50 in fiscal 2022.
A total of 38 hedge funds held long positions in Bunge Limited (NYSE:BG) in Q4 2021, up from 37 funds in the prior quarter. Jack Woodruff’s Candlestick Capital Management is the biggest shareholder of Bunge Limited (NYSE:BG), with more than 1 million shares worth $95.6 million.
Bunge Limited (NYSE:BG) is gaining traction among elite hedge funds, just like The Procter & Gamble Company (NYSE:PG), UnitedHealth Group Incorporated (NYSE:UNH), and Dollar General Corporation (NYSE:DG).
5. The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 41
The Kroger Co. (NYSE:KR) is an Ohio-based retail chain that operates a network of supercenters and hypermarkets across the United States. Companies like The Kroger Co. (NYSE:KR) can withstand recessionary periods since demand for groceries and household essentials remains largely inelastic.
The Kroger Co. (NYSE:KR) posted its Q4 results on March 3, announcing earnings per share of $0.91, beating consensus estimates by $0.17. Revenue over the period equaled $33.05 billion, up 7.52% year-over-year, outperforming market estimates by roughly $431 million.
Scotiabank analyst Patricia Baker on March 10 raised the price target on The Kroger Co. (NYSE:KR) to $64 from $60 and kept an Outperform rating on the shares. The analyst noted that The Kroger Co. (NYSE:KR) reinforced its commitment to deliver 8%-11% total shareholder returns annually. Additionally, The Kroger Co. (NYSE:KR)’s successful execution on “Restock Kroger” and the business transformation under this initiative should enhance investor confidence, Baker stated in a bullish thesis.
In the fourth quarter of 2021, 41 hedge funds were bullish on The Kroger Co. (NYSE:KR), up from 39 funds in the previous quarter. Berkshire Hathaway owns the biggest stake in The Kroger Co. (NYSE:KR), with 61.4 million shares worth $2.7 billion.
4. Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 41
Archer-Daniels-Midland Company (NYSE:ADM) is an American multinational food processing and commodities trading company that supplies corn syrup, livestock feed, ethanol, bioenergy, and other agricultural byproducts to food, beverage, industrial, and animal feed markets around the world. Archer-Daniels-Midland Company (NYSE:ADM) is positioned well to withstand recession since it offers essential products that are price inelastic.
On February 23, Archer-Daniels-Midland Company (NYSE:ADM) priced its first sustainable bond, which will support the company’s ESG goals. The offering closed on February 28, and Archer-Daniels-Midland Company (NYSE:ADM) agreed to issue $750 million in aggregate principal amount of 2.9% notes due 2032.
Barclays analyst Benjamin Theurer raised the price target on Archer-Daniels-Midland Company (NYSE:ADM) on March 4 to $88 from $80 and kept an Overweight rating on the shares. The analyst continues to see upside in Archer-Daniels-Midland Company (NYSE:ADM) shares, noting that the company is strategically positioned to benefit from short-term disruption and displays solid long-term fundamentals.
According to the fourth quarter database of Insider Monkey, 41 hedge funds were long Archer-Daniels-Midland Company (NYSE:ADM), up from 27 funds in the previous quarter. Amid the flurry of hedge fund activity around Archer-Daniels-Midland Company (NYSE:ADM), Ric Dillon’s Diamond Hill Capital was the leading shareholder of the company, with 5.70 million shares worth close to $386 million.
3. Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Holders: 44
Dollar General Corporation (NYSE:DG) is an American discount retailer with approximately 18,000 variety stores located across the United States. In a recessionary period, many customers shift from branded products to cheap alternatives for household items that Dollar General Corporation (NYSE:DG) supplies, making it a recession-proof security to buy and hold.
On March 17, Dollar General Corporation (NYSE:DG) declared a $0.55 per share quarterly dividend, a 31% increase from its prior dividend of $0.42. The dividend will be distributed on April 19, to shareholders of record on April 5. The stock traded higher in early trading on March 17 despite Q4 earnings falling slightly short of market consensus.
BMO Capital analyst Kelly Bania raised the price target on Dollar General Corporation (NYSE:DG) to $265 from $250 and kept an Outperform rating on the shares on March 18. The company’s Q4 results were “solid” in spite of the “transitory” gross margin pressures, the analyst told investors in a research note. She sees an opportunity for Dollar General Corporation (NYSE:DG) to return to its 10% EPS CAGR from current levels.
Among the hedge funds tracked by Insider Monkey, 44 funds were long Dollar General Corporation (NYSE:DG) in Q4 2021, with collective stakes amounting to $2.20 billion. BlueSpruce Investments, the largest shareholder of the company, disclosed a position worth approximately $637 million at the end of the December quarter.
Here is what LRT Capital Management has to say about Dollar General Corporation (NYSE:DG) in its Q3 2021 investor letter:
“Executive Summary
At LRT Capital Management we are continuously searching the market for great investment opportunities. Our favorite finds are companies with moats and growth opportunities that justify a higher price than what the stock is trading for. One of our holdings (approximately 1.5% of our long exposure) is Dollar General (DG), so today, we wanted to tell you a bit about this great company.
Company Overview
Dollar General is a discount retailer with the largest brick-and-mortar presence in the United States by store count. The company’s largest concentration of stores can be found in the southern, southwestern, midwestern, and eastern parts of the United States.10 Dollar General was founded in 1939 by J.L. Turner, who originally named the company “J.L. Turner and Son, Wholesale”. As the name suggests, the company began its life as a wholesaler, but quickly turned to a retailer of general store goods. By the early 1950s, the company had annual sales of $2 million per year,12 which is the equivalent of $22.95 million in 2021 dollars when adjusted for inflation.
The first Dollar General store opened on June 1st, 1955 in Springfield Kentucky. The simple concept was that no item in the store would cost more than one dollar. The company changed its name to Dollar General Corporation in 1968 when Dollar General became publicly traded. At the time of its initial public offering, the business generated more than $40 million in annual sales. The company’s common stock was publicly traded from 1968 until July 2007, when it was taken private by KKR. The company went public again in November 2009, under the ticker DG.
Today, Dollar General is an evolved, and phenomenal business with more room for growth. Annual sales reached a record $33.7 billion in fiscal year 2021 after consecutively growing the top line for many years. The company’s main products are every-day necessities and consumables purchased by lower income consumers on tight budgets…”
2. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 67
The Procter & Gamble Company (NYSE:PG) operates as an American multinational consumer goods corporation, manufacturing and distributing personal health and hygiene products. The Procter & Gamble Company (NYSE:PG) is a mature company that can survive a recession, given the indispensable nature of its product portfolio, large global customer base, and solid balance sheet.
On March 16, Deutsche Bank analyst Steve Powers reduced the price target on The Procter & Gamble Company (NYSE:PG) to $173 from $179 and kept a Buy rating on the shares, stating that the company’s management seemed confident in its ability to outperform despite near-term market volatility and latest headwinds.
Rajiv Jain’s GQG Partners held the biggest stake in The Procter & Gamble Company (NYSE:PG), with 7.5 million shares worth $1.2 billion. According to Insider Monkey’s Q4 database, 67 hedge funds were bullish on the stock, compared to 69 funds in the previous quarter.
1. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 96
UnitedHealth Group Incorporated (NYSE:UNH) is a Minnesota-based multinational insurance and managed healthcare company. Insurance and healthcare stocks have historically remained recession-proof, since people cannot put off important medical procedures and do not usually unsubscribe from their insurance policies.
UnitedHealth Group Incorporated (NYSE:UNH) on February 16 declared a $1.45 per share quarterly dividend. The dividend is payable on March 22, to shareholders of record on March 14. Among the hedge funds tracked by Insider Monkey, 96 funds held long positions in UnitedHealth Group Incorporated (NYSE:UNH), up from 95 funds in the prior quarter.
On January 26, SVB Leerink analyst Whit Mayo raised the price target on UnitedHealth Group Incorporated (NYSE:UNH) to $550 from $480 and kept an Outperform rating on the shares. The analyst noted that the company’s Q4 results were in line with expectations.
Here is what Third Point Management has to say about UnitedHealth Group Incorporated (NYSE:UNH) in its Q3 2021 investor letter:
“UnitedHealth is one of the largest healthcare companies in the world and a market leader in both its insurance and healthcare services (Optum) businesses. We initiated our position during the 2020 Presidential election at a time of heightened political and regulatory uncertainty.
We believe under its new CEO, Andrew Witty, UnitedHealth can not only preserve its market dominance and sustain industry-leading growth rates across most of its key segments but also enter new healthcare services markets. Witty is known as a mission-driven CEO who clearly articulates his view that providing high-quality, affordable health care services is a social good. He receives consistently high marks from former colleagues, and we believe that his leadership approach will ballast and even strengthen UNH’s already impressive management and employee ranks. The insurance and services businesses are synergistic and complementary, which entrenches United’s critical role in care financing, access, and management. This dynamic gives us confidence in the durability of United’s market leadership…” (Click here to see the full text)
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Disclosure: None. 10 Recession-Proof Stocks to Buy and Hold is originally published on Insider Monkey.
