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Home > Blog > 5 industries shielded from the pending recession
FRIDAY, MAY 15, 2020

5 industries shielded from the pending recession

5 industries shielded from the pending recession

The economic prognosis for 2020 changes almost daily.

But one detail that everyone from Main Street to Wall Street seems to agree upon is that markets worldwide are headed into an economic slump as a result of the novel coronavirus and business-halting efforts to contain it.

Consider these telltale signs:

  • “A nasty, historic recession is looming, and Americans of all ages will feel it,” Caroline Mimbs Nyce wrote in The Atlantic.
  • BBC News reported in April that the global economy will constrict 3%, igniting the worst global economic decline since The Great Depression.
  • Our sister publication, ThinkAdvisor, has since reported that the U.S. economy is shrinking at a pace of 4.8% and that the downturn coincided with the steepest decline in consumer spending in several decades.
  • And, according to CNN, more than 30 million people in the United States have filed for unemployment. As of April 30, that figure represented nearly a fifth of all U.S. workers.

Shifting insurance needs

Individuals and companies will continue to need insurance, regardless of how the economy morphs in the coming months. Downsizing industries, however, may see their coverage needs shrink while people who are downsized may take up new vocations or hobbies that require new insurance products and protection.

Investopedia, the financial news outlet powered by the same team that publishes the annual “Best Places to Work” survey, recently looked at the industries that are least likely to be affected by a recession. In general, businesses that are relatively shielded from a market downturn are those that provide people with essential goods and services at a competitive price.

When a recession or an economic slowdown occurs, markets tend to become volatile leading investors to sell stocks. While some industries are very susceptible to economic changes, other industries perform well regardless of what's happening with the economy.

Although no company is completely recession-proof, the following industries tend to see strong performance even when unemployment increases and consumer sentiment falls.

KEY TAKEAWAYS

  • While some industries are very susceptible to economic changes, other industries tend to perform well during recessions.
  • Consumer staples, which include toothpaste, soap, and shampoo enjoy a steady demand for their products during recessions.
  • Discount stores such as WalMart Inc. as well as alcoholic beverage companies such as Anheuser Busch InBev SA can be recession-proof.
  • The cosmetics industry, including Estee Lauder Companies Inc. and funeral-related service companies, hold up well in a recession

Consumer Staples

 

No matter what happens in the economy, people still need certain household items on a recurring basis. Toothpaste, soap, shampoo, laundry detergent, dish soap, toilet paper, and paper towels. Since these products are always in demand, they're considered consumer staples.1  Major companies in this sector include Colgate-Palmolive Company (CL), Proctor & Gamble Co (PG), and Unilever N.V. (UN). If you look at the manufacturer of many items in your home, you will find these companies. They each own more than 30 major brands as well as dozens of smaller brands.

Grocery Stores and Discount Retailers

 

Consumer staples have to be purchased somewhere, and many of those purchases happen at grocery stores or large retail chains with locations around the world. The Kroger Company (KR), WalMart Stores, Inc. (WMT), and Costco Wholesale Corporation (COST) are among the largest grocery chains in the United States. These powerhouse retail giants collectively bring in hundreds of billions of dollars in revenue.

Alcoholic Beverage Manufacturing

 

Beer, wine, and distilled beverages are high-margin products that are in demand. In recent years, a small group of companies has acquired many of the largest beer and spirit brands around the globe. The largest companies in this sector include Anheuser Busch InBev SA (BUD), Companhia de Bebidas das Americas (ABV), and Diageo plc (DEO). Anheuser-Busch InBev owns brands such as Budweiser, Corona, Stella Artois, Beck’s, Leffe, and Hoegaarden. UK-based Diageo controls brands include Smirnoff, Johnnie Walker, and Tanqueray.

Although research has shown that consumers tend to spend less in total dollars on alcohol and other vices during a recession, the quantity tends to increase as people buy more of less-expensive products. If you keep a stocked liquor cabinet at home, you're most likely a customer of these companies.

Cosmetics

 

Despite a down economy, women and men still like to look good when out socially or at work. The largest cosmetics companies include Estee Lauder Companies Inc. (EL) and Coty Inc. (COTY), a major licensed brand manufacturer.11 Both of these companies have non-cyclical product portfolios that do well in weak economic conditions, in addition to luxury brands, which thrive in a strong economy. Previously mentioned Procter & Gamble and Unilever are also strong members of the beauty industry.

Death and Funeral Services

 

As the popular saying goes, the only two things that are certain in life are death and taxes. While no one can buy stock in the Internal Revenue Service, investors can buy shares in companies that profit from death-related services. Carriage Services, Inc. (CSV), Service Corporation International (SCI), and Matthews International Corp. (MATW) are three companies that make their revenues from life’s inevitable end.

Although there's never any guarantee that companies will generate investment gains, some companies and industries tend to thrive in a recession. Perhaps, these companies can help make a well-balanced portfolio recession-resistant.

Posted 12:17 PM

Tags: business insurance, business, recession
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