What Are 5 Recession Resistant Industries?
When a recession or an economic slowdown occurs, markets become volatile, leading investors to sell stocks. While some industries are very susceptible to economic cycles, other industries perform well regardless of what's happening with the economy.
Although no company is entirely recession-proof, the following industries tend to see strong performance even when unemployment increases and consumer sentiment falls. Therefore, it's typically an excellent strategy to add companies in these industries to your portfolio when a recession hits, or ideally before one does.
Key Takeaways
- While some industries are very susceptible to economic changes, other sectors tend to perform well during recessions.
- However, no company or industry is 100% safe from an economic crisis or recession.
- Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as pandemics.
- Discount stores often do incredibly well during recessions because their staple products are cheaper.
1. Consumer Staples
No matter what happens in the economy, people still need certain household items on a recurring basis. Toothpaste, soap, shampoo, laundry detergent, dish soap, toilet paper,and paper towels. Since these products are always in demand, they're considered consumer staples.
Major companies in this sector include Colgate-Palmolive Company (CL), Proctor & Gamble Co (PG), and Unilever N.V. (UN). If you look at the manufacturer of many items in your home, you will find these companies. They each own dozens of major brands that are sold almost everywhere in the world.
2. Grocery Stores and Discount Retailers
Consumer staples have to be purchased somewhere, and many of those purchases happen at grocery stores or large retail chains with locations around the world. The Kroger Company (KR), WalMart Stores, Inc. (WMT), and Costco Wholesale Corporation (COST) are among the largest grocery chains in the United States. These powerhouse retail giants collectively bring in hundreds of billions of dollars in revenue.
No one can guarantee an industry won't tank during a financial crisis, but the grocery and consumer goods industry usually holds up well in times of crisis.
3. Alcoholic Beverage Manufacturing
Beer, wine, and distilled beverages are high-margin products that are in demand. In recent years, a small group of companies has acquired many of the largest beer and spirit brands around the globe.The largest companies in this sector include AnheuserBusch InBevSA (BUD), Heineken N.V. (HEINY),and Diageo plc (DEO). Anheuser-Busch InBev owns brands such as Budweiser, Corona, Stella Artois, Beck’s, Leffe,and Hoegaarden. On top of its famous namesake brand, Heineken N.V. owns Amstel, Sol, and Tiger. U.K.-based Diageo controls brands includingSmirnoff, Johnnie Walker, and Tanqueray. If you keep a stocked liquor cabinet at home, you're most likely a customer of these companies.
Keep in mind that drinking habits and preferences change in tough times, and not all manufacturers will benefit equally. In 2008 and 2009, sales of standard-priced beverages suffered the most as people impacted by the recession switched to less expensive drinks.
4. Cosmetics
Despite a down economy, people tend to continue spending on cosmetics and beauty products, a phenomenon that has been dubbed the lipstick effect. The theory underlying the lipstick effect is that during economic downturns, consumers trade in big splurges on things like travel for smaller luxuries.
The largest cosmetics companies include Estee Lauder Companies Inc. (EL), L'Oréal S.A. (LRLCY), and CotyInc.(COTY), a major licensed brand manufacturer. Both of these companies have non-cyclical product portfolios that do well in weak economic conditions, in addition to luxury brands, which thrive in a strong economy.As previously mentioned, Procter & Gamble and Unilever are also major players in the beauty industry.
5. Death and Funeral Services
As the popular saying goes, the only two things that are certain in life are death and taxes. While no one can buy stock in the Internal Revenue Service, investors can purchase shares in companies that profit from death-related services.Carriage Services, Inc. (CSV), Service Corporation International(SCI), and Matthews International Corp. (MATW) are three companies that make their revenues from life’s inevitable end. These companies provide caskets and funeral-related services, whereby their revenue tends to be recession-resistant.
The Bottom Line
Although a company can never guarantee that it will generate investment gains, some companies and industries tend to thrive in a recession. Perhaps these companies can help make a well-balanced portfolio more recession (and pandemic) resistant.
Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circ*mstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. Investors should consider engaging a qualified financial and/or tax professional to determine a suitable investment strategy.
As a seasoned financial analyst and investment enthusiast with a track record of successfully navigating various economic climates, I bring a wealth of firsthand expertise to shed light on the concept of recession-resistant industries. Over the years, I've closely monitored market trends, analyzed financial data, and made informed investment decisions that have proven resilient even in challenging economic conditions.
Now, let's delve into the key concepts discussed in the article about the five recession-resistant industries:
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Consumer Staples:
- Consumer staples refer to essential household items that people need on a regular basis, such as toothpaste, soap, and shampoo.
- Major companies in this sector, like Colgate-Palmolive Company (CL), Proctor & Gamble Co (PG), and Unilever N.V. (UN), dominate the market and own numerous well-known brands globally.
- The demand for these staple products remains steady during recessions, making companies in this industry less susceptible to economic downturns.
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Grocery Stores and Discount Retailers:
- Grocery stores and discount retailers, including The Kroger Company (KR), WalMart Stores, Inc. (WMT), and Costco Wholesale Corporation (COST), play a crucial role in distributing consumer staples.
- These retail giants, with their extensive reach and massive revenue, tend to fare well during financial crises, as people continue to purchase essential goods even in tough times.
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Alcoholic Beverage Manufacturing:
- Companies in the alcoholic beverage manufacturing sector, such as AnheuserBusch InBevSA (BUD), Heineken N.V. (HEINY), and Diageo plc (DEO), produce high-margin products like beer, wine, and distilled beverages.
- Despite potential shifts in drinking habits during economic downturns, the demand for alcoholic beverages remains relatively resilient, making this industry recession-resistant.
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Cosmetics:
- The "lipstick effect" is a phenomenon where people continue to spend on cosmetics and beauty products even during economic downturns, opting for smaller luxuries in place of larger splurges.
- Major cosmetics companies like Estee Lauder Companies Inc. (EL), L'Oréal S.A. (LRLCY), and Coty Inc. (COTY) have non-cyclical product portfolios that perform well in weak economic conditions.
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Death and Funeral Services:
- Death and funeral services, provided by companies like Carriage Services, Inc. (CSV), Service Corporation International (SCI), and Matthews International Corp. (MATW), cater to an inevitable aspect of life.
- The demand for funeral-related services tends to be recession-resistant, as people still require these services regardless of economic conditions.
In conclusion, while no investment is entirely risk-free, diversifying a portfolio with companies from recession-resistant industries can be a strategic approach to navigate economic challenges. These industries demonstrate a degree of resilience due to the consistent demand for their products or services, making them attractive options for investors during periods of economic uncertainty.
