Recession proof stocks are something of a myth in the investing community. Like the Fountain of Youth or the Ark of the Covenant, investors have searched for these treasures all the way back through history. The difference is, investors have a much better chance of finding recession proof stocks than they do immortality or biblical artifacts. 

There’s no such thing as a true recession proof stock—every business is susceptible to market conditions in some way. That said, there are stocks that are naturally insulated against market downturns and that actually perform well in recessions and bear markets! You might not be able to build a truly recession-proof portfolio, but you can come close if you know what types of stocks to look for. 

A man in a protective bubble protected from a storm representing the safety of recession proof stocks.

What Stocks Do Well During A Recession?

When we think of recession proof stocks, we need to look at necessity—specifically when it comes to commodities. Discretionary spending tends to drop in a recession, which means frugal people will spend as little as possible on only what they truly need. So, what are things people can’t live without?

  • Historically, utilities companies have outperformed the market in recession. Which makes stocks like NRG Energy Inc. (NYSE: NRG), PPL Corp. (NYSE: PPL) and Exelon Corp. (Nasdaq: EXC) worth looking at. 
  • No matter the market, people need healthcare. Stocks like Pfizer Inc. (NYSE: PFE), Biogen Inc. (Nasdaq: BIIB) and Gilead Sciences Inc. (Nasdaq: GILD) are poised to weather market downturn simply out of growing consumer demand.
  • Low-cost leaders see less impact from tighter spending. And actually gain traction during recessions. Walmart Inc. (NYSE: WMT) and McDonald’s Corp. (NYSE: MCD) are great examples worth adding to a “defensive” recession portfolio. 
  • Companies with a market duopoly or industries with huge barriers to market entry tend to be stable in recessions. Look at stocks like Waste Management, Inc. (NYSE: WM) and AT&T Inc. (NYSE: T) and think about how much competition they really have.

The underlying theme across each of these sectors and companies is need. What do people actually need in their everyday lives? Do they have to pay their utility bills, visit the doctor and buy groceries? Of course! Do they need brand-name apparel or home remodeling services? Not when they’re pinching pennies. 

Look To The Market Stalwarts

If you’re looking for specific recession proof stocks, few are better than the Dividend Aristocrats. These recession proof dividend stocks not only maintain relative stability in turbulent markets. They’ve done so for 25+ years while growing their dividend. For investors, there’s no more attractive value proposition!

Companies like 3M (NYSE: MMM), Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE: PG) are paragons of stability—each has more than 50 consecutive years of stable or growing dividend payments! They’ve proven to be sound investment choices in recessions going back decades. 

All told, there are 57 Dividend Aristocrats (and counting) that have proven stalwart in both bull and bear markets. And while many cite the lack of sector diversity among these stocks, there are certainly enough options to build a defensive portfolio with. 

Should You Buy Stock During A Recession?

Recessions tend to be a turbulent, fear-filled time for investors and the market at large. That said, any smart investor will buy stocks during a bear market. As Warren Buffet, the greatest investor of our time, has said many times, “be fearful when others are greedy, and be greedy when others are fearful.”

It may go against your instincts to buy stocks and invest when the market is down. But it’s one of the most opportune times to grow your wealth. Lower stock prices mean better buying opportunities for the average investor. Don’t try to catch a falling knife during periods of turbulence—instead, invest incrementally on a schedule. 

Eventually, the market will pick back up and when it does, your low cost basis investments will start to accumulate real value—especially if you’ve built a strong portfolio of recession proof stocks.