Some investors are worried that a recession is coming. That’s not at all outside the realm of possibilities. After all, ongoing geopolitical tensions have already affected the economy through higher oil and energy prices and elevated inflation. Perhaps things will get even worse and eventually send broader equities into bear market territory. Though we can’t predict that for certain, we can prepare for this possibility by investing in recession-resistant stocks. Here are two excellent options to consider: Coca-Cola (KO +1.71%) and Johnson & Johnson (JNJ -0.10%).
Image source: The Motley Fool.
1. Coca-Cola
Coca-Cola is well over 100 years old, a feat few corporations have ever achieved. The company has lasted that long partly by becoming a household name. Everyone knows the Coca-Cola brand and logo, which grants the company a significant marketing advantage. Another factor behind Coca-Cola’s longevity is that it belongs to a defensive industry: Consumer staples. The “staple” here refers to goods people tend to buy regardless of economic conditions. Coca-Cola’s beverages belong to that group.
Today’s Change
Current Price
None of this means Coca-Cola’s business will navigate a recession completely unscathed. But the beverage maker has the tools to get through economic downturns relatively well. We can also highlight Coca-Cola’s dividend program. The company has increased its payouts for 64 consecutive years, making it a Dividend King, or a company with at least 50 straight annual dividend hikes. Dividends provide a regular stream of income that helps cushion market losses during downturns. Just as important, Coca-Cola’s dividend streak provides more evidence of its resilience.
Some dividend stocks suspend their payouts when the going gets rough, but Coca-Cola has grown its dividends for more than six decades, a period that includes several recessions and many other marketwide challenges. It’s no wonder, then, that Coca-Cola’s shares are hardly cheap when going by traditional valuation metrics. The company is trading at 25.2x forward earnings, versus an average of 21x for consumer staples stocks. However, Coca-Cola is worth the premium, especially for income seekers building a recession-resistant portfolio.
2. Johnson & Johnson
Johnson & Johnson has also been around for over 100 years and has established itself as an undisputed leader in healthcare, a defensive sector that nevertheless evolves quickly and can leave behind companies that fail to innovate. But Johnson & Johnson has been, and continues to be, an innovator.
The company boasts a large portfolio of pharmaceutical products across several therapeutic areas, with particular strength in oncology and immunology, two of the largest markets in the industry. Johnson & Johnson’s diversified product lineup and deep pipeline mean it can earn brand-new approvals and label expansions fairly regularly while navigating challenges like losses of patent exclusivity fairly well.
Today’s Change
Current Price
The company is also a leader in medical devices, marketing products across cardiovascular health, surgery, orthopedics, and vision care. Even when some of the company’s segments encounter challenges — including during recessions — others should perform well and pull the company average in the right direction. That’s the advantage of diversification.
Johnson & Johnson faces risks, including government drug price negotiations that could lead to lower sales for some of its products in the U.S. and the thousands of lawsuits alleging that its talc-based products caused cancer. However, the company is well equipped to handle both obstacles. It is growing its revenue at a good clip this year, despite a financial hit on some products due to government drug negotiations.
Also, Johnson & Johnson recently reached a proposed $5.5 billion settlement of its remaining ovarian talc litigation, though it is subject to certain conditions. Even if this proposed settlement falls through, the company has a rock-solid balance sheet with an AAA credit rating — the highest rating — from S&P Global. Finally, Johnson & Johnson is also a Dividend King with 64 consecutive annual payout raises. The stock would be a great safe haven during a recession.
