Recession-Proof Stocks: Best Stocks To Buy in a Recession

Recession-Proof Stocks

Rising inflation coupled with the aggressive rate hikes by the Federal Reserve has led to real concerns about a recession. Recessions, of course, impact countless areas of our lives, including stock investments. That makes it more critical to consider investing in recession-proof stocks.

If experience has taught us anything, a diversified portfolio can survive and flourish during recessions. Indeed, as some sectors of the economy speed up, others slow, creating a situation where certain stocks don’t just survive – they thrive.

So, what areas should you consider investing in during a downturn? How should you move your portfolio in preparation for a recession? Here’s a look at some recession-proof stocks and where you may want to consider moving your money.

What Is a Recession-Proof Stock?

A recession-proof stock is a security that can remain relatively unscathed even during times of economic hardship and market volatility. These stocks tend to be stable, mature companies with long-term success track records and solid balance sheets. 

They often provide products and services in demand, no matter the current economic conditions. Examples of recession-proof stocks include large drug companies, food and beverage companies, healthcare, sin stocks, etc.

What Industries Do Well in a Recession?

Consumer Staples

No matter how bad a recession is, people will need certain things: Food, clothing (even if it is less expensive or lower quality), supplies for school, and more. Consumer staples businesses do relatively well – at least comparatively – during a recession.

So, what is a consumer staple company? It is a company that produces something people need, not just things people want. Examples include:

  • Groceries
  • Household goods
  • Products related to hygiene or personal hygiene.

Items from consumer staples stores will always be needed, no matter how bad the economy gets. Indeed, if things are tough enough, people may buy lower-cost goods instead of paying their rent or mortgage. After all, everyone needs to eat and needs clean clothing.

What are examples of consumer staples that may be relatively recession-proof? Examples include:

  • Grocery stores, including regional chains with a strong, built-in customer base, such as Kroger and Albertsons.
  • Larger department stores, like Walmart or Target. Stores that have a broadly diversified product base are often better.
  • Companies that produce needed and budget-friendly household items, such as the Proctor & Gamble Company and Unilever.
  • Blue-chip food manufacturing companies, like Coca-Cola or Pepsi. These companies have well-established brands and diverse products. Indeed, companies like Coca-Cola are often ideal recession-proof stocks. McDonald’s, Tyson Foods, General Mills, and Kraft Heinz could be other candidates.

Utility Companies

Even in the direst of economic times, consumers tend to consume relatively similar energy levels. It means that the companies that provide energy – known as utility companies – will still perform well during a recession.

The sector includes natural gas, oil, and electricity, including specific businesses like Pacific Gas and Electric (PGE), Dominion Energy, and NextEra Energy.

Keep in mind that the definition of utility is necessarily broad. The market takes various sectors related to consumables needed for life or business and lumps them into the utility category. You will want to diversify your portfolio even within this relatively large sector.

The sector also includes utilities that provide a public service, like garbage removal. Even during a market downturn, people need their garbage hauled away. That’s why waste management is considered a part of this sector.

However, it also includes the growing field of companies that own and operate water distribution networks. 

Finally, it includes companies that take the raw materials and produce electricity. As such, you may see nuclear power plant operators – or those in fields related to this field – considered utility companies.

Telecom operators such as T-Mobile, Verizon, Comcast, or AT&T are also considered utilities.

Remember: Utility companies may be relatively recession-proof stocks and perform well on the stock market, but that’s not to say they are entirely immune from a market downturn.

A recession may see a slowdown of overall economic activity, which may damage utility companies’ consistent earnings. Make sure to thoroughly examine this sector to see which companies are less exposed to a recession than others. It can help you make a good stock pick, even in a lousy economy.

Budget Businesses

When times are tough, everyone gets much pickier with how and where they spend their cash. As a result, consumers tend to turn to so-called budget businesses. These businesses sell goods similar to those available everywhere but are cheaper in quality or design.

Dollar stores, Dollar Tree, Dollar General, and related stores are best known for having captured the budget-conscious sector of the economy. They sell lower-priced items that people still need. They also have a relatively widespread product line that allows cost-conscious customers to get much of what they need in one location. This tactic has made dollar stores one of the best budget and recession-resistant industries.

Discount retailers like these – and related ones, like Five Below – are often ideal investments in a recession. Indeed, retailers attempting to sell directly to people trying to watch their bottom line are often among the most recession-proof stocks. 

Depending on the depth and degree of the recession, they may even be among the best-performing stocks during a period like this.


No matter how bad the economy is, people will need medical care. Who ultimately pays may shift from private insurance to government programs. Some people may delay preventative care or elective care. But, in most cases, health care and hospitals are relatively recession-proof, as people tend to care for their medical and physical needs above all else.

You may want to invest in the healthcare sector if you see a recession. It can be particularly wise during an economic downtown.

So, what counts as an investment in healthcare? You may immediately default to hospitals and businesses that directly provide healthcare, and you’d be correct to an extent. However, the healthcare industry is more than that.

  • Drug manufacturers and other researchers involved in cutting-edge technologies have shown the ability to make consistent technological breakthroughs, such as Pfizer, Gilead, Genentech, Roche, GSK, and Medtronic.
  • Insurance companies that provide reimbursements for healthcare, such as UnitedHealth Group, Aetna, and Anthem.
  • Manufacturers with diversified portfolios, like Johnson & Johnson or Abbott Laboratories, also produce household goods.
  • Pharmacies such as CVS Health.

“Sin” Businesses

During a recession, there is still a demand for sin products. These companies often make recession-proof stocks because people will still want to spend their money in specific ways. These “sin” businesses are often ideal for enjoying life less expensively.

In the past, this has included alcohol, tobacco, gambling, or sex-related industries, which have historically done well during a rough economic patch as more consumers seek temporary solace from financial pain. Some examples of sin stocks are Diageo, Anheuser Busch, Altria, Wynn Resorts, DraftKings, Bally’s corporation, and RCI Hospitality holdings.

The past few years have seen a rise in the legalization of marijuana in many states, and many businesses that produce marijuana are significant businesses with a large, international presence.

It remains to be seen how a recession will impact the demand for this recreational drug. However, companies that make legal marijuana may prove to be recession-proof stocks, which are unquestionably worth examining.

Credit Card Companies

As the liquid net worth of individuals drops and job losses mount, people turn to credit cards to make ends meet. Companies such as Mastercard, Visa, and American Express benefit from increased credit card usage. Although delinquencies may rise in a recession, companies can raise rates or restrict credit availability to risky borrowers.

The Benefits of Investing in Recession-Proof Stocks

  1. Recession-proof stocks are attractive investments because they tend to remain strong even when other stocks falter.
  2. Investors can rely on them to provide stable returns even during a recession.
  3. Additionally, these stocks often pay dividends, a form of passive income that can provide investors income even during market downturns. Many of the recession-proof stocks are also Dividend Aristocrats and Dividend Kings.

The Risks Associated With Investing in Recession-Proof Stocks

While investing in recession-proof stocks can provide investors with some peace of mind during market downturns, it’s important to remember that there are risks associated with any investment. 

  1. The most common hazards include potential losses due to market volatility, lack of liquidity, and concentration risk.
  2. Additionally, investors should be aware that some stocks may not remain recession-proof over the long term. As such, it’s essential to research before investing in any stock and to have an exit strategy for when markets turn sour.
  3. Most importantly, recession-proof stocks have a significant overlap with value stocks. When the recession ends, these stocks will lag the performance of growth sectors such as moonshot stocksInvesting in the S&P 500 has handily beaten most value indices in the last decade.

How To Find Recession-Proof Stocks?

Finding suitable recession-proof stocks is challenging as it requires extensive research and analysis. Investors can use several tools to identify recession-sensitive stocks, such as online stock screeners or stock picking services.

Additionally, investors should look at company financial reports for metrics such as valuation multiples, dividend yield, debt levels, cash flow statements, and earnings growth potential to determine a company’s ability to weather the storm during an economic downturn. 

 Macro trends and industry trends, including GDP growth and interest rates, should also be considered.

How To Invest in Recession-Proof Stocks?

Investing in recession-proof stocks is not unlike investing in any other stock. Investors should have a plan for which stocks to buy and when to buy and sell them. It’s important to remember that no stock is entirely safe from market fluctuations, but having a diversified portfolio of recession-proof stocks can help protect your investments from significant swings.

M1 Finance is an excellent platform with zero fees, very low minimums, and automated investment with automatic rebalancing to build your recession-proof portfolio. The pre-built asset allocations and fractional shares help one get started right away.

Alternatives to Recession-Proof Stocks

Besides considering how the recession impacts our stock investments, it is also an excellent time to take a holistic look at your entire portfolio. Besides stocks, should you diversify into other income-producing assets?

Fixed-income investments could reduce the volatility of your portfolio, although they might not produce significant returns. Government instruments such as T-Bills or I-Bonds are the safest investments.

Investing in real estate could be one such option since housing demand continues to grow based on demographics.

Commercial real estate investing may decline as businesses slow office expansion, but people need a place to live. Even during the great financial crisis, demand for rental real estate continued to be substantial due to the foreclosure loss of primary homes.

Crowdfunded real estate could be an option to diversify your investments without needing to invest a large sum as is required to buy a rental property.

Alternative investments could be another option for individuals with higher-than-average net worth. Many alternative investments are restricted to individuals meeting accredited investor qualifications.

Platforms like Yieldstreet provide investment options in art, structured notes, supply chain financing, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $2,500.

The Future of Recession-Proof Stocks

The global economy is constantly changing, and it can be challenging to keep up with the fluctuations in the stock market. One way to protect your investments during an economic downturn is by investing in recession-proof stocks.

Recession-proof stocks are companies that have proven their resilience against economic hardship and provide investors with a sense of security when markets are volatile.

A recession is defined as two consecutive quarters of negative growth in the gross domestic product, and some economic indicators show that we may be heading in that direction.

Thankfully, while a recession usually means slowed growth, it doesn’t have to mean a total wipeout of your investments in the stock market. The economic situation may be challenging, but some businesses will still thrive, and there is no question that recession-resistant stocks can serve your long-term financial needs.

Additionally, as technology further disrupts traditional industries and new trends emerge, some companies will likely become more resistant to economic downturns in the future. For now, investors should continue to monitor their investments and take advantage of attractive opportunities when they arise.

Consider how to rebalance your portfolio to fulfill your long-term financial goals better. Yes, there is no such thing as a complete recession-proof stock, but most investors know that some stock sectors perform better than others in times of a recession or rising inflation.

As economies worldwide continue to grapple with economic uncertainty, investors will likely seek out these types of stocks to protect their portfolios from potential losses.

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