Editor’s note: This article was first published in June 2022. Its figures are from 2022, including hedge fund holdings for each stock, P&G organic growth of 10%, Abbott’s first-quarter 2022 revenue growth of 17.5%, McDonald’s quarterly sales growth of 12% and Walmart’s 2022 drone delivery plans. These stock picks reflect the market in June 2022 and are not investment advice.
Which stocks should you buy in times of inflation, recession or crisis? When uncertainty takes hold of the stock market, it’s time to review our investment portfolio. It’s also time to look for new investment opportunities for an inflation or crisis scenario. That’s why this time we are recommending 7 stocks to buy in 2022 in the face of a recession and fears of inflation.
To choose these seven stocks, we set just a few requirements: the companies must have good fundamentals, little debt and solid dividends sustained over time, plus the backing of the big hedge funds. That last requirement at least ensures that, in a recession, a certain amount of money will not leave these companies, since they are part of the big funds’ portfolios.
But let us make one thing clear before you invest in these companies, which we have called “safe in times of economic recession”: that does not mean they won’t fall at certain moments, because we know that when the market falls out of fear, all stocks tend to fall for a while.
That said, we have also taken into account that in past recessions these stocks did quite well, not only during the downturn, but also when the recession ended, as these companies emerged stronger.
During the 2008 recession, only 25 companies in the S&P 500 managed a positive return that year. Among them were Wal-Mart (WMT), which rose almost 20% over the year, and fast-food giant McDonald’s (MCD), which returned 5.6%.
Safe, profitable stocks to buy in 2022 in a crisis and inflation scenario
1. Procter & Gamble (NYSE: PG): a safe stock for times of crisis
This company manufactures and distributes a wide range of hygiene and personal care products.
PG shares are held in the portfolios of 72 hedge funds, thanks to the company’s good performance in past recessions. In fact, Procter & Gamble has just posted organic sales growth of 10%, as well as 3% growth in sales volume. It is a company with solid dividends sustained over time, so we believe that buying its shares at the discount offered by a correction in its price, plus the dividend payments, secures you a great medium- and long-term investment.
Its biggest competitor, the European company Unilever, isn’t doing badly either, but if we have to choose, we prefer PG for its track record and proven performance.
See also: Risk control in the stock market: the ball system, absurd but effective
2. Coca-Cola (NYSE: KO), the most solid company
Coca-Cola has more than 500 brands, which it sells in more than 200 countries around the world. It remains the choice of more than 64 hedge funds right now, and it is also the favourite company of the legendary Warren Buffett. There is no denying that Coca-Cola may well be one of the companies that has lived through the most market crises. It has plenty of experience in getting through recessions and high inflation.
It has the most solid dividends on the entire NYSE and is expected to keep growing its business by up to 5% a year, which makes it one of the safest and most stable investments, given that we are talking about equities.
3. NextEra Energy Inc. (NYSE: NEE)
NEE is a Florida energy company that generates and distributes electricity, and a leader in clean energy that uses renewables to generate power.
Its shares are currently held by 64 of the most prestigious hedge funds, and analysts have raised its price target. At the end of 2021 it was in the portfolios of 55 hedge funds, so another nine hedge funds added it to their portfolios at the start of this turbulent year for the markets.
4. Walmart Inc. (NYSE: WMT)
“Everyday low prices” is Walmart’s slogan. “A buy in every recession” is the investors’ slogan when it comes to buying Walmart shares during a recession.
It is currently the pick of 60 hedge funds. Its dividends have risen year after year for 50 years. The stock rose almost 20% during the 2008 recession and promises to become the dividend queen for the coming year.
Its innovations include drone package delivery in six US states through its DroneUp programme, and for 2022 it expects to deliver more than one million packages by drone.
Buying Walmart shares has become attractive because of the inflationary pressures on the economy. When prices rise, consumers have to look for cheaper alternatives for their daily needs and, in line with Walmart’s slogan, they end up shopping there. That’s why Walmart does fantastically well in recessions, and it is a company that should not be missing from your portfolio.
5. Abbott Laboratories (NYSE: ABT)
In the first quarter of 2022, ABT grew its revenue by 17.5%. The company makes and sells branded generic medicines, diagnostic tools, medical devices and nutritional products.
Morgan Stanley included it among 15 stocks to invest in during a bear market. The company is also currently developing a test for monkeypox, and it continues to benefit from demand for Covid test kits.
The company has the backing of 68 major hedge funds that hold its shares.
6. McDonald’s Corporation (NYSE: MCD): why buy MCD shares?
Why invest in McDonald’s during recessions? Do people eat more burgers in times of crisis and inflation? Honestly, we don’t know.
But the company is in the portfolios of more than 58 hedge funds, and it will keep paying a good dividend.
According to analysts, what makes MCD shares attractive is that the company can outperform any competitor in difficult macroeconomic conditions, since it has a solid distribution network and excellent cost control during inflationary periods.
In addition, MCD is now successfully tapping sales through digital channels and home delivery, so it increased its global sales by 12% this quarter, despite the problems with Russia and Ukraine.
7. McKesson Corporation (NYSE: MCK)
This healthcare services company is in the portfolios of 59 hedge funds. Berkshire Hathaway owns 2.9 million of its shares.
The company has had a solid dividend for more than 20 years, paying its shareholders every year, and the dividend has increased over the last five years. In April, the company committed to paying a quarterly dividend of $0.47 per share.
Analysts have raised their price target for the stock to $377, despite its latest results falling short of expectations. Even so, three more hedge funds added the shares to their portfolios.
So these are the 7 companies we consider safe during a recession, with profit potential in the medium and long term, given the dividends, fundamentals and low debt of these companies.
Other investment ideas
If the stock market slump keeps tightening its grip, we could put several companies on our radar that would offer an excellent buying opportunity if their share prices fall considerably.
These companies are Apple Inc. (NASDAQ: AAPL), Bank of America Corporation (NYSE: BAC) and American Express Company (NYSE: AXP), companies that, despite the market’s ups and downs, usually end up resuming their long-term upward trend.
And remember: before investing, do your own research.
See also: How to invest intelligently during a crisis
Frequently asked questions
Are dividends a scam?
What is a scam is the claim that dividends are a con or a swindle. In fact, dividends are an essential part of our investment strategy. We are talking about solid dividends, not about companies raising capital so they can pay dividends that attract shareholders.
So why don’t Warren Buffett and Madrigal like dividends?
In Madrigal’s case I don’t know, but in Warren Buffett’s case it isn’t true that he doesn’t like dividends. In fact, both Graham and Buffett recommend investing in companies with solid dividends, which is an essential requirement in value investing.
What is the best strategy for dividend investing, and which companies pay the best dividends?
You will find both answers in the following article, where we discuss the investment strategy to follow and the companies that paid the best dividends when it was written. Even so, don’t focus too much on the companies that pay the highest dividends; always look for solid, sustainable dividends from companies with a good track record in this respect.
See also: A dividend investing strategy and the companies that pay the best dividends
Featured image: Warren LeMay, CC0 1.0, via Flickr.
