The Best Stocks for The Next Recession

September 4th, 2008

It could be the overly high expectations of growth from high-tech companies or the excessively large loans that were given to home buyers; every recession is caused by different reasons that cannot be predicted in advance. However, there are always stocks that perform well even during these bearish periods. They are usually called ‘defensive’ companies, and if you have never heard of them, you should carefully read what comes next to be prepared for the next recession.

Looking at the year-to-date performance of the 30 Dow Jones members (taken from Bespoke Investments) can teach us an important lesson about investing during a recession. Without looking at the chart below, can you guess which company’s stock had the best performance?

No matter what the reason for the recession, people will always have to buy home equipment and groceries; also, since your budget is limited during these periods, you’ll probably choose to buy in a discount store. This is exactly why sellers of cheap goods and food such as Wal-Mart (WMT) and McDonald’s (MCD), have thrived. The defensive stock story is a common recession theme, but it was clearly a winner this time.

All seven stocks that had positive returns for the year are defensive stocks. We already mentioned Wal-Mart and McDonald’s; IBM, the (relatively) cheap computer equipment seller is also placed higher on this list, as well as the giant healthcare products manufacturer Johnson & Johnson (JNJ), and the home improvement retailer Home Depot (HD). Despite the recession, people always have to have at least some fun during their vacations, and it should be not too pricy; thus, it is not surprising that we see the most well known entertainment company Walt Disney Company (DIS) closing the list of successive stocks.

Finally, if you want to remember only one thing from this short article, remember this: during a recession, the companies with the highest chance of yielding a positive return are the low-priced retailers with the most recognizable brands.

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Tags: Recession, stocks

Entry Filed under: Stock Trading Investing strategies