5 Recession-Proof Stocks to Own in Preparation of a Downturn

The stock market has had a weak start to the year on investors’ concerns about multi-decade high inflation, Russia’s invasion of Ukraine, rising energy prices, and the potential of aggressive rate hikes by the Federal Reserve. The economy has been under severe inflationary stress, with the Consumer Price Index rising to 7.9% in February, an increase not seen since…

January 1982. Crude oil prices have skyrocketed recently, with the WTI and Brent benchmarks hitting multi-year highs amid fears of supply disruptions. Historically, the U.S. economy has slipped into recession amid high oil prices. And high inflationary conditions might persist with crude oil prices persistently above $100 bbl.

After announcing its first interest rate increase in more than three years, the Federal Reserve has indicated that it may hike interest rates even more aggressively. Higher rates could make it difficult for businesses to grow. According to economist Mohamed El-Erian, “The bond market believes inflation is too high, the Fed is well behind the curve, and the Fed risks pushing the economy into recession as it tries to catch up.”

Given this backdrop, we think it could be wise to bet on shares of defensive companies because of the near inelastic demand for their products and services. So, Lowe’s Companies, Inc. (LOW – Get Rating), Unilever PLC (UL – Get Rating), Target Corporation (TGT – Get Rating), British American Tobacco p.l.c. (BTI – Get Rating) and Colgate-Palmolive Company (CL – Get Rating) could be good bets now.

Lowe’s Companies, Inc. (LOW – Get Rating)

LOW in Mooresville, N.C., operates home improvement and hardware stores. The company offers a range of products for maintenance, remodeling, repair, and decorating and provides home improvement products, such as lighting, electrical, and building materials. Also, it serves homeowners, renters, and professional customers.

On Feb. 3, 2021, LOW announced the launch of its brand Origin21, which delivers an approachable, modern design for everyday living across the entire home. LOW’s Senior VP, Global Merchandising, Sarah Dodd, said, “We’re excited to bring Origin21 to our customers, which is just part of our larger goal to offer consumers everything they need to finish their home improvement projects, all at an exceptional value.”

LOW’s net sales increased 5% year-over-year to $21.33 billion for the fourth quarter, ended Jan. 28, 2022. The company’s net earnings increased 23.3% year-over-year to $1.20 billion. Also, its EPS came in at $1.78, representing a 34.8% increase year-over-year.

Over the last three years, LOW’s dividend payout has grown at a 17.5% CAGR. Its four-year average dividend yield is 1.6%, and its current payout translates to a 1.4% yield.

Analysts expect LOW’s EPS for the quarter ending July 31, 2022, to increase 12.5% year-over-year to $4.78. Its revenue for its fiscal 2024 is expected to increase 2.8% year-over-year to $101.11 billion. Also, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 16.4%in price to close the last trading session at $219.57.

LOW’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

It has a B grade for Sentiment and Quality. It is ranked #13  of 65 stocks in the Home Improvement & Goods industry. Click here to check the additional ratings of LOW for Growth, Value, Momentum, and Stability.

Unilever PLC (UL – Get Rating)

Headquartered in London, UL is a fast-moving consumer goods company. It operates through Beauty & Personal Care; Foods & Refreshment; and Home Care segments. The company offers its products under Domestos, OMO, Seventh Generation, Ben & Jerry’s, Knorr, Magnum, Wall’s, Bango, Axe, Cif, Comfort, Dove, Lifebuoy, Lux, and Vaseline.

On Nov. 18, 2021, UL announced that it had agreed with CVC Capital Partners Fund VIII to sell its tea business, ekaterra. Ekaterra has a portfolio of 34 brands, which include PG tips, Pukka, Lipton, T2. UL CEO, Alan Jope, said, “The evolution of our portfolio into higher-growth spaces is an important part of our growth strategy for Unilever. Our decision to sell ekaterra demonstrates further progress in delivering against our plans.”

For its fiscal year 2021, UL’s turnover increased 3.4% year-over-year to €52.44 billion ($57.93 billion). The company’s operating profit increased 4.8% year-over-year to €8.70 billion ($9.61 billion). And its net profit increased 9% year-over-year to €6.62 billion ($7.31 billion). In addition, its EPS came in at €2.32, representing a 9.4% increase year over year.

Over the last three years, UL’s dividend payout has grown at a 3.2% CAGR. Its four-year average dividend yield is 3.3%, and its current payout translates to a 4.2% yield.

For its fiscal 2023, UL’s EPS is expected to increase 16.3% year-over-year to $3.32. Its revenue for fiscal 2022 is expected to increase 3.3% year-over-year to $61.99 billion. Over the past month, the stock has declined  8% in price to close the last trading session at $46.25.

UL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Value and Stability. Within the Consumer Goods industry, it is ranked #8  of 61 stocks. To see the other ratings of UL for Growth, Momentum, Sentiment, and Quality, click here.

Target Corporation (TGT – Get Rating)

TGT is a general merchandise retailer that sells products through its stores and digital channels. The Minneapolis, Minn.-based company sells an assortment of available merchandise and food. The company’s product categories include apparel and accessories, beauty and household essentials, food and beverage, hardlines, and home furnishing and décor. Its brands include Art Class, Smartly, Auden, Joylab, Colsie, Wild Fable, Open Story, etc.

On March 1, 2022, TGT announced plans to invest up to $5 billion to continue scaling its operations in 2022. The investment will be directed to its physical stores, digital experiences, fulfillment capabilities, and supply chain capabilities that further differentiate its retail offering and drive sustained growth. TGT Chief Financial Officer  Michael Fiddelke said: “We see substantial opportunities to build on our core capabilities to drive deeper guest engagement and long-term growth.”

TGT’s total revenue increased 9.4% year-over-year to $30.99 billion for the fourth quarter, ended Jan. 29, 2022. The company’s net earnings increased 11.9% year-over-year to $1.54 billion. Also, its adjusted EPS came in at $3.19, representing a 19.4% increase year-over-year.

Over the last three years, TGT’s dividend payout has grown at a…

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