Investors who choose to ride out a recession with no exposure to stocks may find themselves missing out on huge opportunities.
History has it that there are companies that perform well during economic downturns -hence investors might consider going for counter-cyclical stocks with solid balance sheets in industries that are resistant to recession.
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Here are examples of stocks that do well during a recession:
Stocks of companies with strong balance sheets
A smart investment move during a recession is to look into companies that retain strong balance sheets/steady business models amid economic uncertainty.
Some examples of these types of companies are basic consumer goods businesses, utilities, and defense stocks. When investors envisage a decline in economic conditions, they often add exposure to these groups in their portfolios.
To know the financial health and profit standing of a company, it is important to study its financial reports. Considering these factors will guide you towards making the best investment decision.
Stocks of recession-proof Industries
While some industries suffer a brutal hit during an economic downturn, a few others actually thrive amid the market fluctuations. Smart investors ensure that they add stocks from some of these recession-proof industries to their portfolio.
These types of stocks are known as counter-cyclical stocks which are the shares of a company that belongs to a particular industry with a negative financial performance correlated to the overall state of the economy.
Counter-cyclical stocks do well in recessions due to an increase in their demands as economic uncertainty remains but decrease when there is an expansion.
Industries that fall under this category include consumer staples, grocery stores, alcohol manufacturers, cosmetics, funeral services and discount stores among others.
In conclusion:
As economic conditions ease back to normalcy, those highly leveraged, cyclical, and speculative companies that survived the recession are the first to bounce back and benefit from increasing enthusiasm and optimism as the recovery takes hold.