Astute investors focused on the long term always analyze potential investments to see how they’d perform in a hypothetical recession. To build sustainable wealth in the stock market, it is prudent and beneficial to seek out stocks that are resilient during adverse economic scenarios. This is of the utmost importance in today’s economic climate, where owning these companies not only provides growth potential, but delivers peace of mind in tough times.
Three stocks that can recession-proof your portfolio are…
Chipotle Mexican Grill
Chipotle is a household name in fast-casual dining. The company’s giant burritos and burrito bowls have become a favorite over the years for consumers seeking high-quality food at a value.
Some investors might view Chipotle as a mere consumer discretionary business, but I’d urge them to look at the company’s performance during the Great Recession. From 2006 through 2010, Chipotle’s sales and profits grew every single year, demonstrating the appeal it has when budgets are tight. A family that usually dines at a higher-end restaurant once a week will gladly substitute that meal with Chipotle, especially when saving money is the priority.
The company’s second-quarter 2020 results were a disappointment compared to the prior-year period — not surprising, given the onslaught of the coronavirus pandemic and sharp recession that followed. Chipotle’s digital orders, however, more than tripled and represented 61% of overall sales in the quarter. In the midst of a global pandemic that resulted in all locations offering to-go only and an operating loss during the second quarter, Chipotle management still believes the company is well positioned to come out stronger than before. Specifically, the company’s focus on bolstering its digital and rewards offerings will increase customer stickiness in the future.
The stock has had quite the run this year, up 37% through Monday’s close. A P/E ratio of 127 does not exactly bring out the bargain hunters, but investors looking for downside protection should monitor the stock for a better entry point.
Costco’s stock has risen 12% so far this year, driven by the company’s impressive e-commerce growth during the pandemic. Customers flocked to Costco’s warehouses to load up on essential items during shelter-in-place orders. Same-store sales in the U.S. in the third quarter ended May 10 rose 5.9%, while e-commerce sales soared 64.5%. This is all the proof investors need to show how recession-proof this business is.
Costco’s relentless focus on delivering low prices is what keeps members coming back for more. As consumers see just how beneficial shopping here is, membership growth should continue trending upward. In Q3, membership fees generated $815 million, and there were 55.8 million member households.
Although Costco sells its products at low prices, its stock doesn’t look cheap when compared to peers like Walmart and BJ’s Wholesale Club. However, I think it’s worth paying up for this best-in-class company.
This low-cost fitness center chain has all the makings of a recession-proof business. At first glance, just like Chipotle, investors might not consider this a…
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