There is no denying that this has been a challenging year for both new and veteran investors. The benchmark S&P 500, 126-year-old Dow Jones Industrial Average, and growth-focused Nasdaq Composite have all dropped by 24%,19%, and 34% since hitting their all-time closing highs. This implies the Nasdaq and S&P 500 are in a bear market.
Even worse, the United States is becoming more vulnerable to a recession. The first-quarter GDP of the United States fell by 1.5%, and according to the Federal Reserve Bank of Atlanta’s most recent prediction, second-quarter economic growth will be zero percent. With the Fed preparing to tighten monetary policy aggressively during historically high inflation, there’s an actual chance that the stock market will tumble further.
The good news is that there are a few of particularly safe stocks out there that can assist patient investors in navigating the dangerous waters of the market. What follows are two of the most secure stocks to buy if the United States enters into a recession.
The most secure stock for beginning investors is AT&T, the telecom behemoth. Take note that AT&T is paying out a 5.7 percent yearly return, which will help to reduce historically high inflation.
The attractiveness of telecom stocks is that their operational cash flow is usually clear. For the last two decades, having a smartphone and access to internet and wireless services has essentially become fundamental necessities. This implies that economic downturns will unlikely result in significant increases in mobile churn rates.
AT&T is also working on its largest organic growth catalyst, the 5G revolution. The company is investing hundreds of millions of dollars to upgrade its wireless infrastructure to accommodate 5G download speeds. It’s expected that we’ll see a multiyear device replacement cycle culminating in a significant rise in data use, and AT&T’s sweetest wireless margin comes from data.
AT&T also split off content arm WarnerMedia in April, which was subsequently combined with Discovery to form Warner Bros. Discovery, a new media company entirely. When this deal was completed, AT&T received a $40.4 billion payment that it will be able to use to lower its outstanding debts and enhance financial flexibility.
Energy Products Partners
Oil and gas midstream operator Enterprise Products Partners is a rock-solid stock that would be safe to invest in if the United States enters a recession. The company’s 7.9% yield almost entirely compensates for the highest inflation reading we have seen in four decades.
Although investing in energy equities may not seem appealing, Enterprise Products Partners is not a driller. Within the energy complex, it operates transmission pipelines, storage facilities, and refining capacity. Fixed-fee or volume-based contracts are typical for energy intermediaries like this, which implies they have little or no exposure to rapidly fluctuating crude and natural gas spot prices.
Another thing to note about Enterprise Products Partners is that, even as the March 2020 pandemic resulted in a historic decline in oil demand, the firm’s distribution coverage ratio (DCR) did not fall below 1.6 during the height of the pandemic.
The factor is calculated by dividing the amount of cash flow available to investors by the cost of converting that money into a cash dividend. This company’s baseline yearly payout, which has increased for 23 years in a row, was never at risk since it never fell below 1.
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