Reviewed by Thomas J. Catalano
What Are 5 Recession Resistant Industries?
When a recession or an economic slowdown occurs, the stock market overall declines. Unemployment increases painfully and consumer sentiment falls. Consumers tighten their belts, and so do businesses. But, while many industries are very susceptible to economic downturns, others perform well regardless of what’s happening with the economy.
That makes it a good strategy to add companies in some of these industries to your portfolio when a recession hits, or ideally when one appears on the horizon.
Key Takeaways
- Consumer staples tend to enjoy steady demand regardless of the economy.
- The retailers who sell consumer staples tend to thrive.
- Alcoholic beverage consumption stays steady even in hard times.
- Don’t disregard “the lipstick effect.”
- Funerals are inescapable facts of life.
1. Consumer Staples
No matter what happens in the economy, people need certain household items on a regular basis. Toothpaste, soap, shampoo, laundry detergent, dish soap, toilet paper, and paper towels. Since these products are always in demand, they’re labeled consumer staples.
Major companies in this sector include Colgate-Palmolive Company (CL), Proctor & Gamble Co (PG), and Unilever N.V. (UN).
You can spot all of these companies on the labels of many of the products in your home. Each of them owns dozens of major brands that are sold throughout 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.
WalMart Stores, Inc. (WMT), Costco Wholesale Corporation (COST), and The Kroger Company (KR), are among the largest retailers in the world. These powerhouse retail giants collectively bring in hundreds of billions of dollars in revenue.
But the number two company on the list of the top retailers is the online giant Amazon.com, Inc., second only to WalMart Stores in worldwide sales as of 2024.
Important
No one can guarantee an industry won’t tank during a financial crisis, but the grocery and consumer goods industry usually holds up well throughout times of crisis.
3. Alcoholic Beverage Manufacturing
Beer, wine, and distilled beverages are high-margin products that are in demand in good years and bad.
A global study of 50 years of alcohol consumption showed little change in the sheer volume of alcohol consumption in bad times. Habits changed. For instance, people tended to save money by drinking more often at home and less often in bars and restaurants. But overall, they put away just as much beer and spirits.
In recent years, a small group of companies has acquired many of the most popular beer and spirit brands around the globe. The big players in this sector include Anheuser Busch InBev SA (BUD), Heineken N.V. (HEINY), and Diageo plc (DEO).
Anheuser-Busch InBev owns brands including Budweiser, Corona, Stella Artois, Beck’s, Leffe, and Hoegaarden. In addition to its namesake brand, Heineken N.V. owns Amstel, Sol, and Tiger. U.K.-based Diageo controls brands including Smirnoff, Johnnie Walker, and Tanqueray. If you keep a stocked liquor cabinet at home, you’re most likely a customer of these companies.
4. Cosmetics
The ability of the cosmetics industry to withstand a downturn is so well established that the phenomenon is known as the lipstick effect. The theory is that during economic downturns, consumers trade in big splurges for smaller luxuries.
The largest cosmetics companies include Estee Lauder Companies Inc. (EL), L’Oréal S.A. (LRLCY), and Coty Inc. (COTY), a major licensed brand manufacturer. Procter & Gamble and Unilever are also major players in the beauty industry.
These companies have luxury brands but their products also include moderately priced products that many consumers might switch to when times are tough. The French-owned L’Oréal, for example, has luxury lines and designer brands like Yves St. Laurent and Georgio Armani, but it also owns drugstore brands Garnier, CeraVe, and Maybelline.
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.
Which Industries Perform Badly During a Recession?
One major sector that can be hurt by an economic downturn is consumer discretionary. This is “wants” versus “needs.” Tesla (TSLA), NIKE (NKE), and even McDonald’s (MCD) show up on some lists of companies that can suffer when consumers cut back on non-essentials. Even Amazon (AMZN) might make the list, although it can fall back on its strong sales of consumer staples, which are the “needs.”
In any case, the “wants” versus “needs” sector is a wide category, including travel, appliances, and furniture, among many other products.
What Are ‘Cyclicals’ Vs. ‘Non-Cyclicals’?
Cyclical stocks are highly responsive to the ups and downs of the economy, while non-cyclical stocks are relatively impervious to those cycles. This is at the heart of the issue of recession resistance. Manufacturers of airplanes and builders of new homes do well in a booming economy and less well in a downturn, but Coca-Cola still sells.
Which Stocks Did Well During the Pandemic Recession?
The list of stocks that did well during the pandemic recession offers some evidence that consumer staples do well during a recession. Then again, some discretionary brands did very well indeed.
In 2020, the top-performing stocks in the S&P 500 included the Clorox Company (CLX) and Amazon. Peloton Interactive, Inc. (PTON) and Zoom Video Communications, Inc. (ZM) morphed into consumer staples for the stay-at-home crowd. But Tesla, Inc. (TSLA) did spectacularly well, despite being no one’s idea of a staple product.
The Bottom Line
Although a company can never guarantee that it will generate investment gains, in good times or bad, some companies and industries tend to thrive in a recession. These companies could help make a well-balanced portfolio more recession (and pandemic) resistant.
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