Are you worried about a possible recession next year? It's understandable given some of the discussion going on about the economy these days. But even if it happens, that's not necessarily a reason to exit the markets and sell all your investments.
There are no real guarantees when it comes to the ups and downs of the economy, how long any possible recession might be, or how it might impact the markets. Even in a recession, some stocks are more resilient to its effects than others.
The Great Recession of 2007-2009 offers some clues about the types of stocks that may be more resilient than others. While not entirely "recession-proof" investments, three stocks were able to outperform the S&P 500 during the last big recession in the U.S. They were Walmart (NYSE: WMT), McDonald's (NYSE: MCD), and Amazon(NASDAQ: AMZN).
Here's a look at how these stocks did during that economic downturn, and why these three stocks might be good options for risk-averse investors today.
1. Walmart: 1% gain from December 2007-June 2009
Big-box retailer Walmart proved to be a safe stock to own during the Great Recession. While the S&P 500 declined by 38%, shares of the top retailer finished in positive territory, with a modest gain of 1%. A recession impacts consumer purchasing power, but by being a low-price retailer, Walmart delivers competitively priced products even amid challenging market conditions.
In its fiscal year ending Jan. 31, 2008, Walmart's revenue grew by 9% to $374.5 billion. And in the following year, sales would rise by another 7% to $401.2 billion.
By offering a wide range of products at low prices, Walmart can be a go-to store for any customers, whether the economy is in good shape or not. It has proven its resilience time and time again, most recently amid the pandemic, as it has done well during lockdowns and periods of high discretionary spending.
For long-term investors, Walmart is a good, no-brainer type of investment you can hang on to for decades.
2. McDonald's: 2% loss from December 2007-June 2009
Fast food giant McDonald's was another relatively resilient stock to hold during the Great Recession. While its returns were negative during the period (down 2%), it wasn't a huge blow for investors, especially compared to how the markets performed overall amid that stretch.
The company's operations are not unlike Walmart's in that McDonald's focuses on offering lower-priced products to its customers. Eating out at a restaurant is a discretionary expenditure, and by offering lower prices, McDonald's can appeal to price-conscious consumers.
It didn't achieve significant revenue growth during the Great Recession, but its top line was fairly stable; McDonald's revenue totaled $23.5 billion in 2008, which grew by 3% from the previous year. It would fall by a similar percentage the following year to $22.7 billion, which is right around what it generated in 2007.
More recently, McDonald's benefited from raising its prices to compensate for inflation, but it just returned to offering lower-priced menu offerings to win back customers, a move that could help it if economic conditions worsen in the months ahead.
Overall, McDonald's can be a good long-term stock to own for its versatility and its dividend, which yields 2.3%. And it is also a Dividend King, having raised its quarterly payouts consistently for decades.
3. Amazon: -8% loss from December 2007-June 2009
Holding shares of Amazon during the Great Recession would have resulted in losses for investors, but they would have still been modest when compared to the overall market. One thing Amazon does have in common with the other stocks on this list is that it can be a source of low-priced goods.
For shoppers who don't want to go inside a store to buy goods and prefer delivery, Amazon can make for an attractive retail option. Nowadays, with faster delivery and same-day delivery available in many markets, it's arguably even more of a substitute for conventional retail stores than it was more than a decade ago.
During the Great Recession, Amazon was still in the midst of some fast growth. In 2009, its net sales totaled $24.5 billion and were up 28% year over year. And that was 65% higher than the $14.8 billion it reported in 2007.
Amazon's growth rate has slowed over the years, but with the company investing in artificial intelligence (AI), launching a new discount store, and making weight loss drugs available through its online pharmacy, it's still in a great position to continue to grow its business, regardless of the economic conditions. Amazon is a top growth stock to hold for years, and with its price-to-earnings (P/E) multiple now at 40 (lower than it has been in the past), this may be an optimal time to add this stock to your portfolio.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
