In the 21st century, the US, generally regarded as the largest economy, has had three recessions thus far. The first crisis was in 2001, which resulted from an unsustainable boom in dot-com businesses which soon crashed. This was worsened by the 9/11 terror attack on two New York towers. The second one was the great recession of 2008, which lasted more than one and a half years. It was caused by banks offering real estate developers subprime mortgages. The most recent recession occurred in 2020 as a result of the COVID-19 pandemic, which went on to cause a stock market crash.
About the looming recession
2022 has found the US economy facing record levels of inflation, a phenomenon that has not been seen for the last 40 years. What’s more, the Russian invasion of their Ukrainian neighbors has put strains on supply chains of various vital resources such as oil. Though US’s trade with both countries accounts for not more than 0.05% of its total GDP, this has led to higher commodity prices, as well as uncertainty in the stock market. Analysts from Goldman Sachs put the chances of the economy going into recession at 20 to 35%.
In an attempt to curb the rising inflation, the Fed intends to raise interest rates, which will put further strain on the economy. What’s more, both the housing and stock markets are in a bubble, which are warning signs of a further economic downturn.
Best recession-proof stocks to buy in 2022
Advance Auto Parts
When economic downturn hits and a recession comes around, consumers will typically look for ways to cut spending. This may be anything from cutting recurrent expenses such as avoiding coffee shops to make their own beverages at home to avoiding large purchases like buying new homes or luxury items. A portion of the population may prefer to do their car repairs at home as opposed to driving to their local mechanic, which is where Advance Auto Parts comes in. With more than 4,700 stores in the US, Canada, and Puerto Rico, this auto parts vendor is poised to make steady returns during the incoming recession. As a matter of fact, during the recession of 2008, AAP stock rallied 15.4%, while the S&P index fell 38% in the same period.
Dollar Tree
Another common tendency of the average American consumer during economic hard times is shopping at discount stores. Dollar Tree stands out as a household name among the several ones in existence. With more than 15,500 stores in 48 of the 50 states and branches in Canada, this store is likely to post impressive returns even as the rest of the economy suffers. In addition to these, they also have stores under the Family Dollar and Dollar Tree Canada brands. They are also planning to open 190 new Dollar Tree stores and 400 other Family Dollar outlets.
If their continued expansion is not convincing enough, they are also rolling out a program to introduce $1.25 pricing for their goods. This will see them stock a wider variety of everyday consumables and goods.
Royal Gold
Since time immemorial, gold has been used as a safe haven against recession. However, instead of purchasing ingots of the metal, it would be more prudent to invest in a royalty and streaming company like Royal Gold. Such companies bankroll the miners in return for some of the gold they extract or for discounted prices on the precious metals. This affords them great returns for much less risk than the miners.
Other than gold, Royal Gold harbors interests in several other minerals, though the yellow metal takes up the lion’s share. In 2021, gold brought in 74% of the company’s revenue. In the last decade, the company’s stock has risen by more than 40%, while the price of gold rose by a mere 20% in the same period.
Costco Wholesale
This is another discount store that sells goods wholesale at low prices, provided one has a subscription. Thanks to its subscription-based business model, Costco enjoys steady revenue all year round. This makes it a top pick among long-term investors, as the steady income translates to sustained growth.
Costco has historically managed to outperform the markets in times of economic turmoil. In 2020, when the coronavirus pandemic hit, the S&P fell 20% within the first three months of the year, while Costco finished the quarter with a measly 3% decline. Revenue and cash flow went on to increase for the rest of the year, despite the uncertainty caused by the pandemic. In fact, over the last 20 years, its shareholders have gained yields of 1,360% on their stock holdings, compared to S&P’s 400% growth in the same period.
The Kroger Company
This is a retail chain store based out of Ohio. It has several stores all throughout the United States. Kroger is able to withstand recessions because it mainly deals in consumables and everyday household goods, whose demand seldom drops significantly, even in economic hardship.
In its fourth-quarter results from 2021, it reported a 7.52% growth in revenue from the same period in the previous year. This was above analysts’ expectations by more than $400 million. The company’s management is committed to delivering an 8 to 11% return to shareholders each year. They are also running a campaign to restock Kroger, which will likely improve their sales revenue in the coming months.
Conclusion
A recession is more than likely, looking at the current economic climate and the state of the yield curve at present. However, one does not have to lose money based solely on this fact. Several stocks have staged exemplary performances in previous recessionary periods, and all indication is that history will repeat itself.
