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In this piece, we will take a look at the ten best recession-proof stocks to buy in October. For more stocks, head on over to 5 Best Recession-Proof Stocks to Buy in October.
The aftershocks of the coronavirus pandemic are still being felt all over the globe. The virus saw industrial output collapse and led to widespread layoffs and income loss. This in turn motivated central banks to reduce interest rates to stimulate economic activity and give out cash assistance to help families navigate the tough economic environment.
However, all these actions were not without consequence and now, the result of excess capital flowing into the market has resulted in increasing the demand for the products and as a result spurring price growth or inflation. To counter inflation, central banks like the Federal Reserve are raising interest rates to take this capital out of the industry, and this will lead to a recession as businesses find it hard to find capital and end up reducing output.
Commenting on the risk of a recession, hedge fund owner Bill Ackman was optimistic and in an interview given in October 2022, he said:
Look I don't think it's knowable whether or not we're going to have a recession. You know it used to be we had economic cycles with recessions, it's been an awfully long time, but if the Federal Reserve got behind in raising rates and now they're gonna have to be more aggressive. I mean you look at what's going on in housing, people got used to a 3% mortgage rate and now it's 6%+ and that's causing the housing market to slow down fairly rapidly. Housing's a very important part of our economy. So if rate rises have that effect more broadly, then I think it's likely that you're gonna have a recession. If the Fed raises rates pretty quickly, which was our kind of recommendation more than a year ago, and you can sort of cut off inflation and get it trending in the right direction, then there don't have to be as severe and don't have to, if you will force us into a severe recession. But I think sometime in 2023 it's absolutely within the realm of possibility that we're gonna have a recession for sure.
Economists polled by Bloomberg Magazine are more pessimistic than Mr. Ackman, with the latest report outlining that by October 2023, there is a 100% chance of a recession. Another poll of different economists suggests that the probability of a recession is at 60% over the next 12 months, up by 10% since last month's estimates.
Therefore, a potential recession merits a different investment approach and involves selecting companies and industries that supply products that are essential. In this piece, we take a look at some of these stocks, with the top picks being Walmart Inc. (NYSE:WMT), Johnson & Johnson (NYSE:JNJ), and The Home Depot, Inc. (NYSE:HD).
Photo by Darla Hueske on Unsplash
Our Methodology
We studied different industries that have the best odds of stable demand during an economic downturn and then selected the top players in these sectors. The firms were then briefly analyzed through their financials and market performance, following which they were ranked through hedge fund holdings courtesy of Insider Monkey's Q2 2022 survey of 895 funds. These stocks are defensive plays which can weather the current recession. We also preferred dividend-paying stocks for this article.
10 Recession-Proof Stocks to Buy in October
10. Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 38
Dollar Tree, Inc. (NASDAQ:DLTR) is a discount retail variety store company that operates two stores, the Dollar Tree and the Family Dollar stores. These offer a variety of products such as food, toys, stationery, and pet food. The company is headquartered in Chesapeake, Virginia, the United States.
Dollar Tree, Inc. (NASDAQ:DLTR) provides customers that are facing income drops or inflation with a cost effective location to make their purchases. The firm's latest quarter shows that wealth disparity is aiding the company, and its fastest growing segment are now customers with household incomes that range from $80,000 to $100,000. After it increased its price point to $1.25, revenues in its Dollar Tree stores have grown and margins have improved as well.
A report from Placer.ai that was released in October 2022 outlined that dollar stores are seeing greater foot traffic and revenues as inflation pushes customers down from traditional superstores such as Walmart. By the end of this year's second quarter, 38 out of the 895 hedge funds polled by Insider Monkey had invested in the company.
Out of these, Paul Hilal's Mantle Ridge LP is Dollar Tree, Inc. (NASDAQ:DLTR)'s largest investor. It owns 11 million shares that are worth $1.7 billion.
Dollar Tree, Inc. (NASDAQ:DLTR) joins Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), and The Home Depot, Inc. (NYSE:HD) in our list of recession-proof stocks.
9. The Kraft Heinz Company (NASDAQ:KHC)
Number of Hedge Fund Holders: 41
The Kraft Heinz Company (NASDAQ:KHC) is one of the oldest food and beverage companies in the world as it was set up in 1869 and is headquartered in Pittsburgh, Pennsylvania. The firm sells its products all over the globe, across the United States, Canada, and Europe.
The Kraft Heinz Company (NASDAQ:KHC) is undergoing a serious turnaround after 2019, and between 2017 and 2021, the firm's cash position has grown at an average of 16%, or from $1.6 billion to $3.45 billion. During the same time period, the firm has decreased its debt from $31.5 billion to $21.8 billion, for a 30% drop.
The Kraft Heinz Company (NASDAQ:KHC) has also managed to lock in 70% of its cost of goods sold through futures contracts, which is a strong hedge against the current turbulence in the commodities market that is spurred by the Russian invasion of Ukraine. The firm also pays a 40 cent dividend for a 4.45% yield. Insider Monkey's Q2 2022 survey of 895 hedge funds outlined that 41 had held a stake in the company.
The Kraft Heinz Company (NASDAQ:KHC)'s largest investor is Warren Buffett's Berkshire Hathaway which owns 325 million shares that are worth $12 billion.
8. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 46
Target Corporation (NYSE:TGT) is an American merchandise retailer that offers a host of products such as food, toys, home decoration, and other accessories. The firm is based in Minneapolis, Minnesota.
Target Corporation (NYSE:TGT) is vastly overhauling its distribution network which will suit it in an economic downturn, even if consumer purchasing power drops. The firm has started to use its stores as mini fulfillment centers for online orders, a move that is slated to save it as much as 40% in shipment costs. Additionally, should the changes also increase same day orders, then costs will further drop by 90%.
Target Corporation (NYSE:TGT) is also renovating its stores in partnership with big companies such as Apple, and these are further slated to increase its same stores sales by an average of 40%. The company also sold $20 billion worth of food and beverage alone in 2021. Target Corporation (NYSE:TGT) also pays a $1.08 dividend for a 2.76% yield, and 46 out of the 895 hedge funds polled by Insider Monkey during this year's second quarter had invested in the firm.
Target Corporation (NYSE:TGT)'s largest investor is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital which owns 2.6 million shares that are worth $369 million.
Carillon Tower Advisors mentioned the company in its Q2 2022 investor letter. Here is what the fund said:
“Target Corporation (NYSE:TGT) faced its worst day in decades after trimming its profit forecast for the year due to higher costs. While many of the cost pressures are likely to persist in the near term, the company also struggled with a shift in consumer spending, which resulted in inventory write-downs.”
7. Bunge Limited (NYSE:BG)
Number of Hedge Fund Holders: 48
Bunge Limited (NYSE:BG) is an agricultural and food business company. The firm purchases, stores, and transports food commodities such as wheat and canola and it also processes food oils such as vegetable oils. The company is headquartered in St. Louis, Missouri, the United States.
Bunge Limited (NYSE:BG) is well set to benefit from the turbulent macroeconomic environment, as the food at home component of the consumer price index (CPI), which measures inflation, is 12%, a multi decade high. This translated into the company's June 2022 quarter, as the company's operating income from refined and specialty oil grew by 89% annually.
Bunge Limited (NYSE:BG) also increased its full year EPS outlook for the second time this year in Q2 2022, with the latest estimate sitting at $12, up from the $11.50 it had raised in the first quarter. It also pays a 63 cent dividend for a 2.83% yield, and 48 out of the 895 hedge funds portfolios studied by Insider Monkey during this year's second quarter had invested in the firm.
Out of these, Israel Englander's Millennium Management is Bunge Limited (NYSE:BG)'s largest investor. It owns 1.9 million shares that are worth $176 million.
6. McDonald's Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 50
McDonald's Corporation (NYSE:MCD) is the largest fast food chain in the world. Set up in 1940, the firm has more than 40,000 outlets all over the globe and it is headquartered in Chicago, Illinois, the United States.
McDonald's Corporation (NYSE:MCD)'s income and revenue growth over the past three years is a testament to strong management execution. During the period between 2018 and 2021, the firm has grown its revenue by 2% but at the same time, it has squeezed more profits out of this growth, with its gross profit growth sitting at 8%. More importantly, the firm's trailing twelve month gross profit margin sits at a whopping 55.3%, which is significantly higher than the industry median of 36%.
McDonald's Corporation (NYSE:MCD)'s shares have also weathered the storm that has hit the markets this year, as they are down by only 7% this year. The company pays a $1.52 dividend for a 2.45% yield. By the end of this year's second quarter, 50 out of the 895 hedge funds polled by Insider Monkey had invested in the company.
McDonald's Corporation (NYSE:MCD)'s largest investor in our database is Ray Dalio's Bridgewater Associates which owns two million shares that are worth $511 million.
Along with Walmart Inc. (NYSE:WMT), Johnson & Johnson (NYSE:JNJ), and The Home Depot, Inc. (NYSE:HD), McDonald's Corporation (NYSE:MCD) is a strong recession-proof stock.
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Disclosure: None. 10 Recession-Proof Stocks to Buy in October is originally published on Insider Monkey.
