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3 Recession-Proof Stocks with Upside

Friday, May 15, 2020 | Sean Sechler
3 Recession-Proof Stocks with Upside

Finding good stocks to buy in the market these days is no easy task. Although stocks have rebounded nicely off of the March lows, many investors are having trouble figuring out why. Some even believe that we have never seen such a large disconnect between equity valuations and fundamentals. Even billionaire hedge fund investors like David Tepper are admitting that this is “maybe the second-most overvalued stock market I’ve ever seen”.

Although the world’s economic output is experiencing a significant downturn as a result of the global health crisis, that doesn’t mean there aren’t opportunities to explore. In fact, certain companies are able to survive and thrive in economic downturns. Let’s take a look at 3 “recession-proof” stocks with upside below. 

ServiceNow (NYSE:NOW)

When you are thinking about what types of companies will not only maintain a steady business during a recession but also continue to grow, you should consider stocks that are involved with cloud computing. As more and more businesses move their data into the cloud, software companies like ServiceNow are becoming an essential part of the transition. In fact, almost 80% of the Fortune 500 companies were customers of ServiceNow as of Q1 2020.

Cloud computing is changing the way that businesses operate, and ServiceNow helps businesses successfully move their enterprise operations into the digital age. Their business model features cloud computing applications that allow companies to modernize their business processes via digital workflows. ServiceNow’s cloud computing platform is also easy for large corporations to get up and running, and the company reported 34% year-over-year growth in subscription revenues in Q1 2020. With the current trend in working remotely and question marks about when employees will actually start returning to work at their physical offices, ServiceNow is positioned to experience nice growth, regardless of the economic situation.

Teledoc (NYSE:TDOC)

Continuing with the theme of technology companies that will likely thrive in these uncertain times, you have to be intrigued by a company like Teledoc. This business is a true innovator in telemedicine that helps doctors connect with their patients remotely. The company announced strong user growth figures of 125% year-over-year as well as improving profit margins in their last earnings report, although it’s worth noting that they are still struggling to attain profitability.

Since people are being advised to stay at home during the global health crisis, this company is well-positioned to experience even more growth ahead. There are plenty of people that need medical assistance but might be afraid to physically head to the doctor’s office at this time. Whenever you are looking for stocks that can survive a deep recession, you want companies that are fulfilling universal needs in a cutting-edge way. Teledoc fits the bill and the company’s management even raised its forward guidance for 2020 with strong revenue growth estimates for the remainder of the year. Take a look at Teledoc if you are interested in a growth stock that is disrupting the healthcare industry and should be able to withstand the current economic downturn.

Clorox (NYSE:CLX)

Did you know that consumer staple stocks tend to outperform the S&P 500 during economic downturns? Since these types of businesses provide products that people need on a daily basis, you can typically count on them to perform well regardless of the economic conditions. If you are interested in a recession-proof consumer staple stock that has solid upside potential, look no further than Clorox.

You are likely already familiar with the products that Clorox produces, which include classics like Clorox Bleach and Lysol. The company has experienced a nice boost as a result of the global health pandemic since more and more people are purchasing disinfecting products. Clorox recently reported very positive earnings with a year-over-year sales growth increase of 15% in Q3, which is impressive considering their quarter ended on March 31st. You might be thinking that the boost to Clorox’s stock price is more of a short-term trend thanks to COVID-19, but the truth is that life is going to be different going forward. Society will absolutely remain focused on preventing the spread of viruses, and Clorox will be there to help out.

Intriguing Prospects

All three of the stocks mentioned above should perform very well in a recession and have the potential to continue growing for years to come. Although the economy might struggle mightily in the coming months, each one of these businesses shouldn’t have the demand for their services affected negatively. They each could provide some nice upside to your portfolio with relatively low-risk.

The Next 5 Retailers on the Edge of Bankruptcy

Through no fault of theirs, the novel coronavirus has put some retailers on the edge of bankruptcy. And as you’ve seen, many have fallen over that edge including iconic names like Nieman Marcus, J.C. Penney and J.Crew.

In fact, according to the American Bankruptcy Institute, there were 560 commercial Chapter 11 filings in April. That was a 26% increase over last year. And executive director, Amy Quakenboss, suggests that there are more to come.

“As financial challenges continue to escalate amid this crisis,” observes Quakenboss, “bankruptcy is sure to offer a financial safe harbor from the economic storm.”

With no revenue walking through the door, many retailers are seeing a semblance of revenue from e-commerce sales. But for some retailers, the shutdown is more impactful because they didn’t have a strong e-commerce structure. That means that they rely more than others on brick-and-mortar sales.

The real question now is will there really be the pent-up demand that some analysts still swear is just waiting to be unleashed. It may indeed exist. Time will tell. But time is not a commodity many of these retailers have. And we’ve identified five retailers for which the clock is not in their favor.

View the "The Next 5 Retailers on the Edge of Bankruptcy".

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