Given the Federal Reserve’s hawkish stance on fighting inflation, many economists have become more cautious about the economy’s prospects. While everyone is hoping for a recession-free future, certain stocks will flourish even in an economic downturn.
This is because, while individuals may cut back on non-essential expenditures like vacations and cars, they must purchase fundamental goods. These two businesses provide basic items that people still purchase, no matter what their personal financial situation is.
1. Dollar General
Dollar General (DG 0.35%) has the most of its items for under $10. The consumables sector accounts for over three-quarters of its sales. This includes paper towels, toilet paper, trash bags, packaged meals (such as cereal), over-the-counter medicines, and soap. In other words, it’s items that people need to purchase. They won’t use less paper towels even if they are unemployed.
When you compare Dollar General’s sales to those on good days, it’s clear that the company has thrived during difficult economic times. Same-store sales (comps) rose by 9% and 10% in the years that ended Jan. 2009 and Jan. 2010, respectively, when the economy was going through a recession.
On a longer timeframe, the firm has a remarkable run of 31 years of positive comps. Last year’s streak was broken when the comps fell by 2.8 percent, but this was due to the early onset of the pandemic, when there was significant purchasing in some categories that boosted that year’s sales. On an annual basis, comps increased by 13.5%.
The company is projecting a 3% to 3.5% increase in comparable sales this year, up from its previous 2.5 percent estimate.
It offers a solid value proposition with low prices on basic goods, holiday items, and clothing. It becomes even more appealing when people are going through difficult phases in their life.
2. Kraft Heinz
Kraft Heinz (KHC 0.97%) produces condiments such as ketchup, cheese, and dairy products, as well as frozen meals. Its best-known brands include Kraft, Oscar Mayer, Heinz, Velveeta, and Maxwell House. When the economy falls apart, demand for these consumer basics typically doesn’t decrease.
In the first three months, Kraft Heinz’s adjusted sales increased by 6.8 percent. On a good note, the firm was able to compensate for price increases by passing on cost hikes, which accounted for nine percentage points of growth. Volume/mix dragged down sales by 2.2 percentage points during this time, but management attributed it to logistics limitations.
In other words, the company’s ability to get enough goods on shelves decreased, not sales. Many consumer products firms have faced a similar issue. Management was confident enough to raise its 2022 sales outlook, predicting a mid-single-digit percentage rise.
Kraft Heinz offers good prospects even if the economy goes into recession, thanks to its mainstay goods that are found in most people’s homes.
When searching for firms to invest in that will thrive even if the economy sours, look for ones with strong demand. Dollar General’s low costs are likely to attract consumers, which is an excellent scenario. Kraft Heinz may not be as fortunate; nevertheless, people will continue buying things like ketchup during a recession because they’re popular. As a result, they’re excellent stocks to purchase before a recession.