The US has not yet entered recession – which is officially defined as two consecutive quarters of negative GDP growth – but runaway inflation, stagnant wages, food shortages, rising interest rates and geopolitical turmoil could break the back of this fragile economy in the future. near future.
US GDP has already dropped 1.5% in Q1 2022, so another dip in Q2 would start a new recession. If that happens, growth stocks will fall further as value stocks become even more attractive. So today I’m going to look at three resilient top-tier stocks you should add to your portfolio if the dreaded recession finally sets in: Altria (MO 0.57%), verizon (VZ -0.24%)and Johnson & Johnson (JNJ -0.67%).
Altria is America’s largest tobacco company. Its flagship Marlboro brand controlled 42.6% of the national cigarette market in the first quarter of 2022. It also sells cigars, oral tobacco products and iQOS heated tobacco products (which heat tobacco sticks instead of burning them) through a partnership with Philip Morris International (PM 0.63%).
Altria may initially seem like a weak long-term investment, as smoking rates in the US have steadily declined over the past six decades. However, Altria has also consistently increased its prices, reduced its expenses and repurchased its shares to increase its earnings per share (EPS) as revenue growth has stalled. It also consistently increased its dividend every year after spinning off its overseas operations as Philip Morris International in 2008.
Between 2011 and 2021, Altria’s annual revenue increased from $23.8 billion to $26.0 billion, representing an anemic compound annual growth rate (CAGR) of 0.9%. However, its adjusted EPS rose to a CAGR of 8.4%. Alone, Altria shares have risen nearly 50% in the last 10 years. But after factoring in the reinvested dividends, it generated a total return of over 150%. It also reduced its number of shares outstanding by more than 10%.
This stability makes Altria an ideal stock to own during a recession. Its business may just be on water for years to come, but its high futures yield of 7.3% and its low price-earnings ratio of 11 should limit its downside potential as other higher-growth stocks crumble.
Verizon, the largest US wireless carrier, is another low-growth stock that consistently generates steady returns during economic downturns. Between 2011 and 2021, its consolidated revenue increased from $110.9 billion to $133.6 billion, representing a CAGR of 1.9%. However, its adjusted EPS increased by a CAGR of 9.6% as it increased its prices and reduced its costs.
Verizon’s debt increased after the purchase Vodafonein (VOD -1.14%) 45% stake in Verizon Wireless for $130 billion in 2014. However, it didn’t try to become a pay-TV and media giant like ATT (T -0.91%)which clearly bit off more than it could chew with its acquisitions of DirecTV and Time Warner.
As a result, Verizon remains a more secure and predictable telecommunications company than AT&T. It has increased its dividend annually for 15 consecutive years and currently pays a future yield of nearly 5%.
Its stock price has only risen 20% in the last 10 years but has generated a total return of nearly 90%. Verizon won’t generate massive short-term gains this year, but its stable business model and low P/E ratio of nine make it a great defensive stock during a market downturn.
3. Johnson & Johnson
Last but not least, Johnson & Johnson’s diverse portfolio of pharmaceuticals, consumer health and medical devices makes it an ideal investment for long-term investors.
J&J’s three core businesses often grow together, but they can also easily offset a cyclical slowdown in one of its segments with growth in its other two divisions. Between 2011 and 2021, J&J’s revenue rose from $65 billion to $93.8 billion, representing a CAGR of 3.7%, even as its pharmaceutical division struggled with patent expirations on several blockbuster drugs and its consumer business has been hit by a number of security-related lawsuits. His adjusted EPS also increased by a CAGR of 7%.
J&J’s growth rates aren’t exciting, but it constantly invests its excess cash in buybacks and dividends. It has reduced its outstanding shares by about 4% over the past decade, and is one of the top Dividend Kings that has increased its dividend annually for 60 straight years. Its shares have risen nearly 180% in the last 10 years, which has translated into a total return of over 260%.
J&J currently pays a future yield of 2.5% and is reasonably valued at 17 times future earnings. The company also plans to spin off its entire consumer healthcare business as a new company in late 2023. J&J’s stock may seem to barely move from month to month (or even year to year), but that stability long term makes it a great stock. to hold if the market crashes.