Stocks to buy

Many investors believe a recession is imminent. Indeed, there are many reasons for such a view, which makes searching for the best stocks to buy in this environment difficult.

Inflation is high, interest rates are on the rise, geopolitical concerns remain and the yield curve is steeply inverted. The last factor, yield curve inversion, is probably the most indicative of an upcoming recession. Over the last several decades every time the yield curve has been this inverted, there’s been a recession. So if the market is right, and it has an incredible track record, we’re headed for some pain.

With that in mind, picking winning stocks can seem like a fool’s errand.

However, every recession is different, and the shape and breadth of this potential upcoming recession will likely be different from what we’ve seen in the past.

That said, for those seeking a defensive way to manage through this turmoil, here are three of the best stocks for a recession right now.

McDonald’s (MCD)

Source: 8th.creator / Shutterstock.com

One of the best stocks to buy in any environment has to be McDonald’s (NYSE:MCD). A powerful consumer brand with a global presence, McDonald’s has enriched long-term investors due to its simple menu, strong reputation and consistent profitability. The business has provided distributions since 1976 with a current quarterly distribution of $1.38 per share. Accordingly, with a current yield of around 2.1%, McDonald’s still provides a greater yield than the S&P 500 average.

McDonald’s is a resilient restaurant franchise that can generate strong financial results regardless of the economic climate. With a cash payment percentage of 80% less than its net income during the preceding decade, the business has boosted its distribution by 92% over the same time frame. For those who like total returns, that’s a great thing.

Due to the unpredictability of the future, traders consider the advantages and disadvantages of a potential investment, and many cautious traders favor a stability strategy. Since MCD stock operates well in macroeconomic upswings and downswings, McDonald’s is regarded as a decent investment alternative and a dependable selection for those seeking steadiness.

McDonald’s has proven to be a resilient business that can weather economic ups and downs. Additionally, if the economy improves, McDonald’s is in a position to benefit even more as people tend to eat out more frequently when times are good. Despite some customers upgrading to more expensive restaurants, McDonald’s is still a recognizable food service franchise that offers something for everyone. Even those who trade up are unlikely to completely abandon McDonald’s thanks to its convenience, speed and consistency.

Johnson & Johnson (JNJ)

Source: Alexander Tolstykh / Shutterstock.com

Johnson & Johnson (NYSE:JNJ) stock is a top pick for investors looking to hold a company through to retirement that can weather a negative macro environment. In the healthcare and consumer staples sector, JNJ stock has proven to be a strong financial performer. This is highlighted by its AAA credit rating, one of only a few such companies in its weight class.

Johnson & Johnson has an incredible track record of providing steady and consistent earnings growth. This has allowed the company to weather previous recessions, and provide increasing dividends for 60 consecutive years. That’s no easy feat.

In a recession, consumers cut back on many items. However, essential products such as those provided by Johnson & Johnson, must be bought. The company’s strong brands and pricing power suggests that even in difficult times, this is a company that will come through. Investors need only look to the previous recessions to see how this stock outperformed.

Perhaps much of this sentiment is already baked into JNJ stock. It’s not cheap by any stretch, trading at around 25 times earnings. However, the company has ample growth potential in its biotech division, with an impressive pipeline of almost 50 programs in Phase 3 development, showcasing its continued commitment to innovation.

Moreover, Johnson & Johnson is a reliable company that maintains its dividend payments during challenging times, which can help to offset market losses. Additionally, with a multi-year settlement for the company’s talc powder taking the monkey off of investors’ backs, this stock is free to rise from here. And rise it will, in my view.

Apple (AAPL)

Source: pio3 / Shutterstock.com

Apple (NASDAQ:AAPL) is the world’s largest company, and is a top holding of many of the most prominent investors of all time. One only needs to look to Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) portfolio to see how world-class investors weight this stock.

During a downturn, Apple’s revenues may suffer because fewer people may be willing to spend money on expensive electronic items. Considering that the iPhone generates almost half of the firm’s annual sales, this could be especially bad for the business. Macroeconomic challenges contributed to a year-over-year decline of 8% in iPhone revenue during the fiscal first-quarter.

That said, Apple remains among the most defensive mega-cap tech stocks for a reason. Apple’s loyal customer base highly values their iPhones due to the seamless hardware-software integration that results in high customer satisfaction. Additionally, Apple’s iCloud keeps all devices running in sync, encouraging customers to buy more than one device, ultimately creating a diversified revenue stream.

This strong ecosystem creates network effects and a respective durable competitive advantage, or what Buffett would call a moat, around the business. For those thinking long-term, this company which  generates approximately $100 billion in free cash flow annually, is among the best stocks to buy in this market.

On the date of publication, Chris MacDonald has a position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

Articles You May Like

Investing Under Trump: How To Maximize Your Market Gains
Behind the “Trump Bump”: How Much Could Stocks Rise in 2025?
Caligan picks up a stake in Verona Pharma, seeing an opportunity to generate more value
AI’s Dark Horse Could Become Its Crown Jewel Under Trump
DoubleLine’s Gundlach says expect higher rates if Republicans also win the House