The economy is in a strong position today, but you couldn’t tell by looking at the S&P500down 6% in January. As the Federal Reserve declares its intention to raise interest rates this year to curb soaring inflation, investors may worry about a possible economic slowdown in the not-too-distant future. In this case, determining how to position your portfolio is a top priority.
let’s see why Wholesale Costco (NASDAQ: COST), Home deposit (NYSE:HD)and O’Reilly Automotive (NASDAQ: ORLY) are three stocks you will want to buy during a recession.
Selling everything from groceries and electronics to furniture and jewelry at some of the lowest prices around, warehouse club operator Costco is a very low-risk investment in a downturn. economic, a time when people are looking to stretch their budget as much as possible.
After the pandemic first hit the United States in March 2020, consumers flocked to their nearest Costco store to do all their shopping in one trip. And the growth has still not diminished. In December, Costco increased comparable store sales, or comps, by 14.5% year over year.
Costco’s massive scale and resulting buying power — with $196 billion in fiscal 2021 revenue and 828 warehouse locations — allows it to negotiate favorable terms with suppliers. But because the company keeps prices as low as possible, its margins on merchandise sales are intentionally thin. Costco’s 62.5 million member households (as of November 21, 2021) are the solution, driving customer engagement and loyalty and providing the company with stable, recurring revenue.
If another recession is on the horizon, I’m sure Costco will continue to be a top shopping destination. This makes it a no-brainer stock possess during difficult times.
2. Home Depot
Another high end retail inventory to consider during an economic downturn is home improvement giant Home Depot. What makes this company, which has generated $148 billion in sales over the past 12 months, particularly appealing is that it serves DIYers and professionals extremely well.
At the start of the pandemic, the DIY segment saw a surge in demand as people embarked on simpler projects. But over the past three quarters, the professional business has moved beyond DIY, demonstrating homeowners’ renewed comfort with strangers entering their homes to carry out complex renovations. This flexibility is essential when the economy turns sour.
In a weak economy, people are less likely to consider moving and will instead focus on renovation projects to improve their homes. Management’s focus on “leading the market down and delaying it” when it comes to pricing strategy shows how intensely the company is focused on providing its customers with as much value as possible.
As a result, Home Depot is a safe and reliable business for investors to own, whether in times of economic prosperity or crisis. The company is an essential part of the housing industry, reliably for clients and all the projects they need to complete. And the stock has been a huge winner, climbing 163% over the past five years.
3. O’Reilly Automotive
Maybe the most recession-proof company on that list is O’Reilly Automotive. The aftermarket auto parts chain has proven its all-weather appeal, especially during the financial crisis more than a decade ago. In 2008 and 2009, revenues jumped 41.8% and 35.5%, respectively, year-over-year. If another recession occurs in the near future, shareholders have absolutely nothing to fear.
People will look to extend the life of their existing vehicles instead of buying new ones when the economy gets worse. We still have to go to work and school as well as run errands, which requires a working car. This sense of customer urgency puts O’Reilly and its 5,740 national stores in an advantageous position to meet their needs.
Additionally, strong industry tailwinds are expected to support the company’s growth in the coming years. Americans are driving more miles each year and the average age of vehicles on the road continues to climb. Both create increased wear and tear on cars, a boon to O’Reilly’s business.
For 2021, same-store sales are expected to increase between 10% and 12%. Meanwhile, gross margin is expected to exceed 52% and free cash flow is expected to exceed $2 billion – superb financial metrics by any measure.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.