Investing

Are You Investing in Recession Proof Companies?

By Kanwal Sarai
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Take a look at your investments, whether it’s in mutual funds, ETFs, index funds, or individual stocks, are you invested in recession proof companies? If you answered no, then you might be in trouble. Let’s take a look at what is a recession proof company and how do you invest in one.

What is a recession proof company?

The best way to describe a recession proof company is to look at companies that aren’t recession proof. For example, imagine we are in the middle of a recession or downturn in the economy, and there’s a good chance you or your spouse might lose your jobs, are you going to:

  • Go out and buy a new car?
  • Go on an expensive trip overseas?
  • Watch a live concert, show, or hockey game?
  • Buy a brand new TV, or next-generation smart phone?

The answer is going to be no! In each case you will try to save as much money as you can by:

  • Keeping you existing car for a little longer, or buying a used car
  • Staying home, or taking a local trip
  • Watching the show or hockey game on television

Therefore car manufacturers, airlines, aircraft manufacturers, travel companies, consumer electronic companies and entertainment companies are not recession proof. Whenever there is a downturn in the economy these companies will suffer. So why would you want to invest in these companies? If your mutual fund or index fund is full of these companies then prepare yourself for mediocre results and high volatility.

Now imagine we are in the middle of a recession or downturn in the economy, and there’s a good chance you or your spouse might lose your jobs, you are still going to:

  • Brush your teeth
  • Use toilet paper
  • Turn the lights on in your home when it gets dark
  • Turn the heat on in your home when it gets cold
  • Continue to eat

Regardless of which way the economy goes, you will still need to purchase food, toothpaste, toilet paper, electricity, natural gas and other essentials that provide you with food and shelter. The companies that provide these products and services are recession proof. Even in a recession these companies will continue to make sales and be profitable.

No one can predict when the next downturn or recession will occur, and no one knows how long it will last. Therefore it is in your best interest to invest in recession proof companies and ignore the rest.

Want proof?

Here are five sample returns from my portfolio. I invested in the following recession proof companies which I still hold today:

  • TransCanada, 351%
  • Walmart, 53%
  • National Bank of Canada , 38%
  • Johnson & Johnson, 22%
  • Pepsi, 21%

How and when to buy?

The key to successful investing is to buy quality (recession proof) companies when they are undervalued. In a previous post I explained how to know when a particular stock is undervalued. Other qualities to look for are companies that are consistently profitable, and have low debt. In the Simply Investing Course I cover 12 key attributes which are important to know when making an investment decision.

Investing in recession proof companies is simple, easy, and the key to building your wealth.

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Kanwal Sarai

With more than 27 years of investing experience and a passion for investing and teaching, I demystify the world of investing. My goal is to help you grow your net worth by investing in quality dividend paying stocks. Build your own stream of increasing income today.

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Showing 4 comments
  • Dividend Growth Investor
    Reply

    This is a great article. It reminds us to look for companies with stable business models that will keep delivering even during poor economic conditions.

    Also, welcome to Thediv-Net!

    Dividend growth Investor

  • Kanwal Sarai
    Reply

    Thanks Dividend Growth Investor! I'm glad to be part of DIV-Net!

  • Steven J Fromm
    Reply

    Appreciate the insights. Very nice post. What is your view on the fixed income side of the equation with interest rates so low now. Any investment ideas?

  • KC 2 genxfinance
    Reply

    That is great. We should look for companies that are firm and stable, those who have already established their names and have gone through the passed recessions.

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