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Best Stocks to Buy During a Recession in 2021

A recession is commonly defined as two consecutive calendar quarters with negative real GDP. Oftentimes, the first sign of a recession is the inversion of the yield curve; i.e., the yield on the 2-year Treasury bond being higher than that of the 10-year bond. A recession is characterized by a decline in economic activity and a general decline in the equity market (bear market). But this doesn’t mean there are no good stocks to buy; some stocks perform well during a recession.

Knowing where the economy is headed and making portfolio adjustments accordingly is the key to successful investing, which is why, in this guide, we’ll discuss how to trade stocks during a recession and offer our list of the best stocks to buy.

Where Can I Buy Stocks During a Recession?

You can always buy stocks through a stockbroker, recession or no recession, once you have a standard share-dealing account or any of the tax-efficient trading accounts such as a Stock & Shares ISA or Self-Invested Pension Plan (SIPP) if you’re in the UK. If the company whose stock you want to buy offers a direct stock purchase plan, you can also buy the stock directly from the company.

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Overview of Trading Stocks During a Recession

According to the National Bureau of Economic Research (NBER), a recession is marked by a significant decline in economic activity spread across the economy and lasting more than a few months. It is normally visible in real GDP, real income, employment, industrial production, and wholesale/retail sales.

When economic activity slows, spending declines, profits are reduced, and stock prices fall (sometimes for several months). So, trading stocks during recessions can be quite tricky, and — most times — unprofitable. However, there are certain goods and services that consumers cannot do without, no matter the state of the economy. These include health, food, basic household supplies, and basic transportation. 

Thus, stocks in sectors such as healthcare, consumer staples, and utilities thrive during a recession because their products and services are necessities. Buying the right stocks in these sectors during a recession can be profitable.

What Are the Trading Hours for Stocks During a Recession?

As at any other time, stocks are traded on weekdays between 9 am and 4.30 pm New York Time when the US market is open. Stocks can also be traded pre-market (two hours before the stock market opens) and during after-hours (two hours after the market has closed). In the UK, stocks are traded between 8 am and 4.30 pm when the London Stock Exchange is open.

How to Trade and Invest in Stocks During a Recession?

1

Look for a Sector that Does Well During a Recession

Trading during a recession is different from trading during a booming economy. Health care, utilities, and consumer staples are the few sectors where investors can find profitable stocks during a recession.

2

Choose the Specific Stocks to Buy

Analyze the companies, especially the market leaders in those recession-proof sectors to choose the right stocks to buy. You may perform both fundamental and technical analyses.

3

Place Your Trades

When you’ve chosen the stocks to buy, go ahead and place your orders. If you don’t yet have an active trading account with a stockbroker, you can open one immediately; it doesn’t take much time. Fund it with the amount you want to invest with and start trading.

Top 10 Stocks to Buy During a Recession

Based on the resilience of their business models, here is our top 10 list of stocks to buy during a recession:

  1. Amazon (NASDAQ: AMZN)
  2. General Mills (NYSE: GIS)
  3. Target (NYSE: TGT)
  4. Walmart (NYSE: WMT)
  5. Procter & Gamble (NYSE: PG)
  6. PepsiCo (NASDAQ: PEP)
  7. CVS Health (NYSE: CVS)
  8. IDACORP (NYSE: IDA)
  9. Lowes (NYSE: LOW)
  10. The Clorox Co (NYSE: CLX)

1. Amazon (NASDAQ: AMZN)

Amazon has become a household name for online retail shopping. The e-commerce and cloud computing powerhouse proved last year that it is possible to create jobs and increase revenues during a recession. In the second and third quarters of 2020 — the height of the pandemic — Amazon realized a combined total revenue of $184.75bn and a profit of $13.55bn. After ramping up between March and August 2020, Amazon shares then bounced up and down within a wide range until (at least) May 2021.

2. General Mills (NYSE: GIS)

General Mills is a US-based food company that produces cereals, frozen dairy products, and pet foods. The company is known for many big brands, including Cheerios, Cocoa Puffs, Pillsbury, Totino's, Betty Crocker, Yoplait, and Annie's Homegrown. Its stock did just fine during the Great Recession from 2007 to 2009. During the coronavirus pandemic, General Mills projected that its 2020 EPS would increase by 6% to 8% in the fiscal year but it increased by as much as 22%.

3. Target Corp. (NYSE: TGT)

Target has a track record of beating recessions (2008 and 2020). The company posted its best-ever financial performance during last year’s recession. Target’s multi-year strategy of heavy investing in e-commerce paid off, with the big-box store posting a 24% annualized growth in sales for Q2, 2020, the highest in the company’s history. Target has continued to reinvent itself and make itself appealing to consumers despite stiff competition from the likes of Amazon. 

4. Walmart (NYSE: WMT)

Walmart is a clear beneficiary of a weak economy, as shoppers hoping to minimize expenses rush to discount retailers. No other retailer is primely positioned to appeal to the desire for savings than Walmart. The world's largest retailer remains the go-to destination for discount sales. It increased sales by 6.75 % in 2020: a testament to its resilience. Having enjoyed a good 2020, Walmart shares sank during the first quarter of 2021 before beginning to rise again.

5. Procter & Gamble (NYSE: PG)

Procter & Gamble's household products account for significant market share in their respective categories. The company has one of the longest dividend growth streaks in the market and is proficient at extracting a higher percentage of profits out of its sales. The company's net profit margin increased by 234% in 2020, with all its segments posting positive organic sales growth. P&G shares have risen consistently since 2018 and achieved an all-time high price in November 2020 before becoming a bit more volatile.

Expert Tip on Buying Stocks During a Recession

Your ability to recognize economic cycles could mean the difference between making profits and enduring avoidable losses. While you focus on sectors that historically do well during tough recessions, such as healthcare, utilities, and consumer staples, make sure you invest in high-quality companies with strong balance sheets, low debt, and good cash flow.
- Emmanuel Ekwomadu

Why Invest in Stocks During a Recession?

The economy always rebounds strongly after a recession. When the market starts to plunge, investors can take advantage of reduced share prices and then profit from the upswing that follows. Baron Rothschild is quoted as saying that "the time to buy is when there's blood in the streets".

Frequently Asked Questions

  1. The first sign of a recession is often the inversion of the yield curve when the yield on the 2-year Treasury bond is higher than that on the 10-year bond. However, there can be a yield curve inversion without a recession. So, check other key economic indicators, such as real GDP, and watch the market’s behavior.

  2. There is always a general decline in the equity market during a recession. In fact, the market anticipates the recession and starts to decline before the recession officially sets in. The general bear market makes people want to stay away. However, smart investors know it’s a time for bargain hunting in the right stocks.

  3. Buying stocks during a recession is risky because the market is bearish. However, it is the perfect time to buy at cheaper prices if you know the right stocks to buy.

  4. No, it is not. Beginners don’t have the right skills to find the best stocks to buy during a recession. So, it may be better to stay out of the market until the storm is over.

  5. Experienced investors looking for value and cheap bargains know that the period of recession is the best time to pick diamonds at cheap prices. Smart investors cultivate in the market during recessions.

  6. No, stocks are traded during a recession the same way they are traded during normal times: on weekdays between 9.30 am and 4.00 pm New York time when the US stock market is open for trading. For the UK market, the stocks are traded between 8.00 am and 4.30 pm when the London Stock Exchange is open.

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