Every day, hundreds of ‘financial gurus’ claim that the next recession is right around the corner. While the vast majority of these claims will prove false, it’s a simple fact that one will eventually be right.
So will your portfolio be ready?
Just as it is impossible to predict when exactly the next recession will hit, it is impossible for a stock to be fully recession-proof. Every recession is unique, none will be like the last, and each industry will be affected differently. The best we can do is search for a stock that is recession ready – a company whose services will not be overly disrupted by economic turbulence.
These two companies have stood through past recessions and are certainly ready for the next.
1) American Tower
American Tower (NYSE: AMT) is a real estate investment trust (REIT) that owns and operates wireless and broadcast infrastructures throughout 17 different countries. It is one company you’ve never heard of that you use everyday.
American Tower is a business of the future. Not only will they be in a prime position to take advantage, alongside our 2 stocks to benefit from the rise of 5G in 2019, but they have created a massive barrier of entry for competitors. By owning over 170,000 cellular towers and leasing out to some of the biggest names in communication, American Tower has established themselves as one of the market leaders in communication infrastructure.
What makes American Tower ready for the next recession, however, is that their services will not be disturbed by the economic climate. Like haircuts, people will still need phone signal meaning towers will still be rented — no matter how many points the Dow has dropped.
In his 2018 letter to shareholders, CEO James Taiclet attributes American Tower’s historical performance to the company’s resilience, even through the Financial Crisis of 2008-2009.
During the crash of 2008, revenues increased 8% for American Tower, showcasing how their long-term contracts are a winning strategy. This growth has continued into the present day with 20,000 towers being added to their portfolio in 2018 in conjunction with an 11% increase in revenue.
American Tower’s geographical diversification, lease structure, and strong balance sheet ensure that it will remain — and potentially thrive — throughout the next recession.
Costco (NASDAQ: COST) is one of the largest retailers in the world. As of 2018, Costco has 768 locations and more than 94 million customers – all of whom must pay a membership fee to shop at its stores.
We’ve previously discussed how Costco is one of our 3 Amazon-proof retailers, but it’s also recession ready. By cutting out the frills, Costco offers consumers a cheaper alternative to their main competitor, Walmart, which in times of economic trouble will be highly beneficial. During a recession, people will be more likely to both buy in bulk and dine at home. This will potentially lead to more and more people becoming Costco members.
This makes Costco a great recession ready stock. In fact, it’s entirely possible that a recession could be beneficial to Costco in the long term as members usually stick around — renewal rates are currently at 90% in the U.S. and Canada.
During the financial crisis of 2008-2009, Costco stock dropped 37%. Despite this, memberships increased by 8% in 2008 and a further 6% in 2009, while membership renewals reached an all-time high of 87% in 2008. Since then, the stock price has jumped over 5-fold, easily outperforming the S&P500 over the same time. Today, Costco continues to succeed, with memberships increasing 4% and comparable sales up 9% from 2017.
Just as people will still need phone service in times of recession, people will still need to buy groceries too and Costco aims to be the best and most affordable way to do it. The Seattle Times reported that in the first 11 months of 2009, retail sales dropped 8% while sales in warehouses and superstores grew 2%. This need for Costco’s services ensures it will be here long after the next recession.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in American Tower and Costco. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Ciaran is a contributing writer at MyWallst.