The 6 Most Recession-Proof Industries

The 6 Most Recession-Proof Industries

By Toptal Talent Network Experts

Recession-proof industries either provide an absolute necessity that consumers will always keep purchasing, or have characteristics that are conducive to experiencing increased demand in downturns.

For what seems like an endless Groundhog Day-like existence, we have heard on the news that a recession is imminent. Analysts will point to an obscure chart that shows it’s coming; someone will then retort with a “correlation does not imply causation” kickback. We hear about this so much because it breeds fear; recessions can be catastrophic for businesses and consumers.

Some types of businesses don’t have as much fear about recessions though, because they actually perform resiliently–if not strongly–during them. What are these recession-proof industries, and what characteristics have contributed to this luxury?

What are Recession-Proof Companies?

All companies strive for growth and strong earnings, no matter what conditions their underlying economies are under. Yet some fail, due to being naive about their true customer loyalty, product/service positioning, and/or a failure to comprehend the contagion that can seep in from elsewhere. Three-quarters of companies experience a revenue decline during a recession, yet 14% actually experience revenue and profitability growth.

Institutional investors class recession-proof stocks as “defensive”: businesses that have been proven to be resilient to economic shocks, the caveat being that their performance is not as stratospheric as others during better times. Goldman Sachs’ basket of defensive companies have returned 11% over the past year to September 2019, during which the S&P 500’s return has just been 1.9%.

To be recession-proof though, a business must either be providing something that is a high enough priority that even the most frugal consumer will still buy, or conversely, is one that sees demand rise due to the tough conditions that the economy is under.

The following chart tracks the growth of a variety of sectors during the 2008/09 recession, where it’s clear to see that a number of industries mentioned performed strongly due to their recession-proof characteristics.

Performance of Company Types During the Great Recession (2008-09)

 Below are some examples of Industries that have Recession-proof tendencies. Pay specific attention, not to the product/service, but the behavior around it which establishes its “defense.”

Household Staples: Sustenance

The term “staples” is key here, as it’s referring to the basic, everyday items that we need for nutritional sustenance and personal hygiene. So think bread over caviar and soap over fake tan.

To continue reading, please go to the original article here:

https://www.toptal.com/finance/financial-analysts/recession-proof-industries