Uncertainty is the overwhelming emotion surrounding global markets at the moment, as the potential for a rate hike in the US, and China’s seeming inability to maintain consumer demand weighs heavy on sentiment. That we are approaching another recession is becoming an increasingly popular opinion, and investors are looking to reallocate capital in order to reduce exposure to any potential downturn. With this in mind, here are five companies that could gain strength, not lose it, as equities markets weaken.
Wal-Mart Stores Inc. (NYSE:WMT)
First up we’ve got Wal-Mart. The company has had a tough year to date, currently trading more than 25% down on its January open, but it’s cheap prices and all-encompassing offerings make it an attractive recession stock. When times are hard, consumer preferences shift all too quickly from more upmarket food retail outlets and Wal-Mart has positioned itself to benefit from the shift. The company suffered alongside pretty much every other as a result of the broader market sell-off we saw back in 2008/2009. However, it recovered quickly and during the three years to 2012 gained 55% on post-recession lows. With $485 billion revenues recorded last year for $16 billion in earnings, Wal-Mart is as steadfast a downturn allocation as they come. Not high growth, but unlikely to give away too much of its valuation.
The ADT Corporation (NYSE:ADT)
Next up, ADT. ADT is another company that has had a tough year – at least over the last couple of quarters. From April highs of more than $42 a share, the company now trades for a little over $31 – a 27% discount across a matter of months. A third quarter earnings miss at the end of July compounded the bearish momentum, but a weakening global economy could be what’s required to initiate a turnaround. The company specializes in home and commercial security systems and personnel. Data has repeatedly shown an increase in crime rates during serious recession, and this could play into the fortunes of ADT going forward.
McDonald’s Corp. (NYSE:MCD)
McDonald’s proved the standout stock of the last recession, recovering from 2008 lows around $53 to hit $100 before the end of 2011 – an 88% gain at a time when wider equities markets were in turmoil. The gains show that McDonald’s is an enjoyable enough experience to leave the house for, yet not prohibitively expensive – even at times of downswing. The company lost nearly 10% of its market capitalization in the August price crash, illustrating that it is not immune to a wider market selloff. However, this might be a bonus as it allows for a well-timed allocation to offer a discounted exposure to what could be another half decade of growth for the fast food behemoth.
Teva Pharmaceutical Industries Limited (NYSE:TEVA)
We’ll draw the list to a close with two potentially rewarding biotech exposures. First up is Teva – an Israel-based generic drug incumbent. Healthcare spending is relatively inelastic to macroeconomic conditions (indeed, it often increases during times of recession) and this puts a large portion of the healthcare industry as potentially rewarding recession-proof exposures. Teva has an edge, however, rooted in the fact that it develops and markets generic drugs. This makes its end user product (generic treatments) much cheaper for consumers, and reduces the cost of development of these products considerably. Healthcare spending may be relatively inelastic, but as household budgets decline, the cheaper alternative to a necessary pharmaceutical product will generally outsell (from a volume perspective) its more expensive, branded counterpart.
DaVita HealthCare Partners Inc. (NYSE:DVA)
Finally, we’ve got DaVita. DaVita operates a network of kidney disease and dialysis treatment centers in the US, treating just shy of 200,000 patients every year. Demand for dialysis does not correlate with risk appetite in the equities markets for obvious reasons, which makes DaVita a safe haven allocation in any portfolio. This company’s post-recession gains outpaced those of McDonalds, gaining more than 140% between 2008-2012. Annual revenues came in at $8, $11 and $12 billion during 2012, 2013 and 2014 respectively and quarterly reports this year suggest another annual expansion, while analysts are almost unanimous in their support of this bias. Even without the potential for a recession around the corner, this would be one to watch.