There is only one thing that is guaranteed for most companies during a recession and that is their revenue will decline and subsequently, their stock prices will take a significant hit in the process as well. However, when it comes to certain industries, the opposite is true. Some industries thrive during an economic downturn. Those industries are considered essential, such as senior services, budget stores, and indulgent industries. But why do some industries decline and other industries thrive when the market is declining? Here is a list of companies and industries that defy the market and why they do so.
Healthcare
Healthcare is an essential service that is required no matter the state of the economy or the stock market. The demand for all healthcare would be considered inelastic, which would mean that the demand for healthcare services does not change during a recession, it remains relatively unchanged. The senior care industry in particular remains quite strong during a recession as well.
Due to healthcare being inelastic, healthcare-based companies fare much better than other types of industries. The healthcare sector does not only include hospitals, but also pharmaceuticals, mental health services, and healthcare equipment. Investing in healthcare-based stocks can provide additional stability and returns during a recession.
Sweets and Treats
No matter how bad or good the economy is, individuals could never resist the urge to have some candy. Many individuals who are facing hard times or uncertainty might find a little comfort when it comes to chocolate or cakes. Many candy, bakery, and confectioner companies see an increase in their revenue. Although some candy companies may not see an increase in stock price, their stock will typically see less of an impact than other stocks.
Do it Yourself (DIY)
During a recession, individuals will try to keep using what they already own for as long as they possibly can, this includes toothpaste, soap, and especially cars. Instead of purchasing new cars, individuals will often repair their vehicles themselves to save money. Because of automotive DIY increasing during a recession, many aftermarket automotive retailers will see an increase in revenue. Companies that supply parts to the DIY market are often quite busy during and after a recession.
It is also during this time that many automotive garages see an increase in business due to the same reason, people trying to fix their cars as opposed to purchasing a new one. The automotive industry will be hit hard during a recession, but the automotive aftermarket industry will continue to supply the much-needed parts for DIYers and auto garages.
The same also holds true for individuals who own their own home and are uncertain of the economy’s future. Home maintenance stores and wholesalers will also see a more business during an economic downturn for the same reason aftermarket automotive stores do. Instead of hiring a plumber or painter, homeowners will take it upon themselves to buy the paint and tools needed and perform the work themselves. This would save them a significant amount in labor costs when doing the work themselves.
Utilities
Utilities are another example of an industry that fares better than most during a recession. The need for electricity, gas, water, and internet will remain relatively the same, even during a recession. Some individuals might try to reduce the usage of electricity or water, but the majority of the time, the reduction is insignificant to the total amount of demand. Utilities will always be in demand due to being an inelastic service that individuals need for every life no matter the condition of the economy.
Discount Retailers
Non-essential goods such as clothes and shoes at major retailers will always see a decline in demand during hard times. But discount and wholesale stores see an increase in their sales. Many discount retailers buy inventory in bulk and are able to offer cash-strapped customers better prices than traditional retailers.
Unlike regular retail stores that focus on a handful of products, discount retailers don’t only focus on one product type, but many. Inventory may include a wide selection of products, from fashion to furniture, and the main attraction of discount stores is food and snacks. Retailers during the same period will often struggle to stay afloat during a recession, whereas discount retailers will thrive. During the 2008 global financial crisis, some discount retailers saw significant gains to their stock, with examples being Dollar General and TJ MAXX.
It goes without saying that consumer staples remain a necessity in day-to-day life, no matter how the economy is performing. Consumer staples refer to products that are used almost every day by individuals. These products can be soap, hygiene products, and food for example. Since they are not considered luxury goods or wants, the demand for consumer staples will continue to be strong.
Make a Plan
Having one’s personal finances in working order and organized can mean the difference between surviving a recession and losing everything in a bankruptcy. A service that thrives during a recession is financial advising and planning.
When the stock market starts to decline, many individuals seek the advice of a financial planner as a means of reducing the impact of a decline in terms of how to allocate assets or for tax benefits. Businesses also rely on financial planners and accountants to help streamline their business’s financials or for business advice in hopes of surviving the economic decline. During normal times, financial planners and accountants are quite important to consult with and it is even more important during a recession.
One of the consequences of a recession is that many households accumulate thousands, if not 10s of thousands in debt in a relatively short period of time. Credit card debt and personal loans increase drastically during a recession as people try to survive and due to this, the debt collection industry thrives.
As the length of a recession goes from a few months into years, the amount of debt defaults increases dramatically as individuals can no longer pay their debts. This can include all types of debts, medical, car, and electric. It is after the defaults start to happen that the debt collection industry thrives, where they start to reposes cars and homes.
Although the listed companies do better than average during a recession, it is always best to look at individual stocks before investing. There are many different factors that go in why a company excels during a recession and others do not. Simply being in a “recession-proof” industry is not a guarantee that their stock will increase when other stocks decline. This could be for a wide range of reasons.
For example, if a company is burdened heavily with debt and with a high debt service payment then chances are they will have a rougher time despite being in an industry that tends to fare better. Due diligence is an essential part of investing in any company. This is especially true during a recession, as investors need to understand where the company stands.
Preparing a portfolio in anticipation for an economic downturn is more than just investing in industries that have historically not been impacted significantly. It involves divesting investments in higher-risk categories while also diversifying into more industries that are less risky. It would also involve allocating assets into corporate bonds and government bonds, but make sure to do plenty of research, there is a lot of uncertainty in this 2022 version of economic challenges, let’s make sure to keep our heads on and not get too emotional. This post was written with Financialquazar on Fiverr, we hire Fiverr writers who understand the subjects they write on, that way we all learn more. To read more from this author click Asset Allocation, How to Create a Financial Plan and How to Build a Portfolio from Scratch. Subscribe for a weekly e mail with the weekly blog posts.
