Recession-Proof Industries To Pump Up Your Portfolio

Key takeaways

• As inflation continues – and the Federal Reserve hikes interest rates to fight it – a recession appears increasingly likely
• To compensate, many investors are looking to invest their hard-earned dollars in “recession-proof industries”
• While no industry is truly recession-proof, some resist downturns better than others, including healthcare, consumer staples and transportation
• Diversifying your investments among a range of asset classes, industries and market caps can further weatherproof your portfolio

As inflation marches on and the Federal Reserve hikes interest rates to match, the threat of recession appears ever-likely. During recessions, consumers spend less, businesses sell less – and investors suffer deflated portfolios as a result.

But that’s not true across the board. In fact, you can protect your portfolio with stocks inhabiting so-called “recession-proof industries.” While they can’t negate the impact of a downturn completely, they can soothe the worst of the losses. Some recession-proof businesses may even turn a handsome profit when economic winds shift.

What are “recession-proof industries”?

Recession-proof industries are industries that have a historical tendency to weather recessions better than their peers. You may also call these investments defensive stocks, since they’re more resilient against downturns.

Technically, the name is a misnomer, as no industry or business is completely recession proof. Think of them as recession-resistant instead: industries that see fewer losses – or even greater gains – when the economy sours. The downside is that when the economy booms, these stocks may stagnate or grow much more slowly.

How to determine if an industry is recession-proof

What makes an industry recession-proof depends on a few variables.

The first is whether an industry services basic human needs or prioritized desires. Long story short, businesses are less likely to suffer during a recession if they provide goods or services that people can’t (or won’t) go without.

Another potential factor is if the business model is uniquely designed to capitalize on economic downturns. Businesses like discount retailers or firms that provide maintenance and repairs to extend an item’s lifespan fit this niche.

Some industries turn out to be recession-proof only for a short time, perhaps linked to the reason the downturn occurred. Consider Peloton, NetflixNFLX
and Zoom – stocks that thrived during the pandemic due to a global shift to work-from-home.

Due to these variances, you can never truly tell which industries are “guaranteed” to be recession-proof.

Of course, industry is only one consideration. It’s also important to look at a company’s niche, fundamentals, profit margins and market cap. Just because a company inhabits a recession-resistant industry doesn’t mean it’s a great bet.

Recession-proof industries to consider for your portfolio

Whether or not a recession lies in the future remains up in the air. Until it happens, it will be impossible to say which industries were “recession-proof” this time around. But with historical precedent and a little conjecture, you can make a very educated guess about which industries could thrive.

Consumer staples

Even when consumers tighten their budgets, there are some categories that just can’t be cut out completely. Perhaps the most prominent of these is consumer staples.

The consumer staples industry is vast, encompassing everything from groceries and household cleaners to candy and toilet paper. This industry tends to perform well during recessions because they’re required for clean, healthy living. Even when the economy tanks, people still need to eat, take showers and clean their houses.

Notable consumer staple stocks include Unilever, Procter & Gamble, Coca-Cola, Kroger and Costco Wholesale. Several of these companies even boast business portfolios stuffed with smaller brands that cater to all levels of budget and preference.

Guilty pleasures

Guilty pleasures is less an industry and more a category – but that doesn’t reduce these businesses’ recession potential.

The guilty pleasures category includes stocks that cater largely to vices, addictions and feel-good pastimes. Think companies that produce or sell alcohol, tobacco, gambling experiences or even the growing reach of marijuana products.

Because items sold by these firms are often some combination of addictive and stress-relieving during tough times, their sales often remain steady (or even increase) when recessions hit.

And by the way, Q.ai offers our very own Guilty Pleasures Kit, so you can invest in the vices, addictions and – let’s face it – fun that make you feel good.

Budget businesses

Like guilty pleasures, budget businesses are more a category than an industry. Still, they are worth mentioning as a recession-proof investment.

When consumers slash their spending, one way to reduce budgets is to switch from big-name brands to discount businesses. That may mean switching from Whole Foods to Walmart and Dollar Tree, United Airlines to Spirit Airlines or Macy’s to Poshmark.

If you’re feeling particularly thrifty, you can toss restaurants like McDonald’s and Wendy’s into the discount bin, too. After all, when budgets tighten, many people move from eating fancy to eating fast.

Shipping and goods transportation

Necessities or not, raw materials and finished products still need to be shipped to their end purchaser. That’s where freight and transportation comes in.

Companies that move goods around the world – by air, land or sea – will continue to be necessary expenses for companies and customers of all stripes. Whether you prefer UPS or Union Pacific, shipping companies can make a solid recession investment.

Utilities

Like groceries, utilities are another necessity that Americans can’t live without. You simply need water in your pipes, electricity in your house and air in your vents. These industries can also profit from government regulation and subsidies during recessions, providing an extra layer of protection.

A few utilitarian bets could include PG&E, American Electric Power and American Water Works.

Healthcare

Another necessity that people can’t or won’t cut back on is healthcare. People need their health to work, play and relax, no matter the economic climate.

As a result, hospitals, insurance firms and pharmaceutical companies often remain steady during recessions. But the industry doesn’t revolve entirely around medical centers and prescriptions – band-aids and aspirin are medical needs, too.

For investors, that means you can look beyond Pfizer and Moderna to outfits like Johnson & Johnson and Walgreens to round out your portfolio.

Information technology

Historically, IT has maintained a more cyclical than defensive position. But as modern business – nay, modern life – relies ever-more on technology, these stocks have become all but essential.

The sector is also vast, including companies that produce computer software and hardware, semiconductors and even the internet. As an investor, that provides plenty of choice and makes IT a solid recession bet.

Communication and digital services

Similar to IT, communication is less essential for life and more for evolving business needs. That includes telecommunication companies like Verizon, search engines like Google, social media firms like Meta and streaming services like Netflix. You might even toss video game makers like Activision Blizzard into the mix.

On one hand, some of these (looking at you, Netflix and Activision) are largely considered discretionary. But, like guilty pleasures, consumers simply refuse to give up their entertainment and distractions when the going gets tough.

That said, each company and recession differs, so there are no guarantees. But as recession-proof industries go, telecommunication and digital services can be a good bet.

Don’t forget the importance of diversification

Choosing recession-proof industries is only one consideration during economic downturns. Another key component to success is maintaining a diversified portfolio.

Put simply, sticking too much capital into too few companies can concentrate your risk to a dangerous degree. When these businesses crash – or the rest of the economy booms – you risk suffering losses or missing gains. All of a sudden, you’ve gone from killing it during a recession to treading water during the recovery.

Fortunately, avoiding this all-too-common scenario is a cinch with the power of diversification. And Q.ai makes achieving that ideal balance even easier.

With a wide selection of Investment Kits that balance degrees of risk and reward potential, investors can choose their preferred allocations. Take your pick from investing in the future, protecting yourself against inflation or swinging for the fences with riskier assets.

Alternatively, you can select from our AI-controlled options to balance your risk not just by portfolio, but between portfolios, to achieve that perfect balance.

Better yet, it’s all backed by artificial intelligence to give you the best odds of building long-term wealth, no matter the economic climate.

Recession, who?

Download Q.ai today for access to AI-powered investment strategies.