Prosper Junior Bakiny, The Motley Fool
5 min read
Although geopolitical tensions have eased and oil prices have fallen, there is still the very real possibility that the U.S. could be headed toward a recession, as some economists have been warning. After all, inflation remains elevated, and that could trigger a slowdown in consumer activity, with a domino effect across much of our economy. We don’t know for sure whether that will happen, but it’s always a good idea for investors to prepare for such a scenario. Purchasing shares of companies that can perform better than most during recessions and market downturns is a great idea. Johnson & Johnson (NYSE: JNJ) is an excellent choice in that regard. Here is why.
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A recession-resistant company
Johnson & Johnson tends to outperform broader equities during recessions and market downturns. Let’s take two examples. First, the 2008 financial crisis, triggered by the collapse of the housing market, impacted the entire economy, including the stock market. That recession lasted about 18 months, from December 2007 to June 2009. Here is how Johnson & Johnson performed throughout it all compared to the S&P 500.
Next, the 2020 recession and associated market crash, which resulted from the coronavirus pandemic. This one was short, lasting only about two months. And once again, Johnson & Johnson outperformed the average.
Are these just flukes? Not at all. Johnson & Johnson’s business is equipped to perform well throughout the economic cycle. The company operates in a defensive sector: healthcare. Medical goods and services aren’t among the first things patients want to cut, even when their purse strings tighten. That’s especially the case with lifesaving drugs. Johnson & Johnson has a vast portfolio of pharmaceutical products across many areas. The company also has a deep pipeline that allows it to earn brand-new approvals fairly regularly.
Then there is Johnson & Johnson’s medical device business, which offers products that help physicians treat a range of serious conditions across cardiovascular health, surgery, and other areas. Johnson & Johnson’s medtech unit is also recession-resistant. The company’s diversified healthcare business is an important reason it performs relatively well even when the going gets rough. Further, Johnson & Johnson has a strong balance sheet, as evidenced by its AAA credit rating from S&P Global (the highest possible). This means investors don’t have to worry about Johnson & Johnson failing to meet its obligations, even in a recession.
