Today’s economy operates differently from past recessions. The Great Depression, for example, hit at a time when the primary means of transportation were trains and steamships. Today, in contrast, we have planes and cars as the primary means of transportation.
While recessions tend to shake things up for a while until things get back on track again, how do recessions affect various industries? Are some sectors more affected than others? Which industries thrive during hard times?
Read on to know more. If you are one of those people who think that a recession is a great opportunity to invest, then you are right.
A recession forces businesses to take stock of their financial situation, rein in unnecessary expenses and focus on what they do best to survive the downturn and thrive after it ends. Here is a list of 9 Industries That Thrive During a Recession.
In today’s post, we will learn:
- Companies Who Thrived During the Last Recession
- Historically Recession-Resistant Industries
- Recession FAQ
- Investor Takeaway
Okay, let’s dive in and learn more about industries that thrive during a recession.
Companies Who Thrived During the Last Recession
The economy is not immune to the recession. It frequently adheres to the economic cycle, an erratic but largely predictable pattern. Before reaching a climax, expansionary periods can continue for years.
The economy then experiences a period of contraction—a recession—before entering a trough to the subsequent expansion.
For investors, recessionary times can be terrible. During the contraction phase, stock market declines and corrections are frequent. During a recession, cyclical stocks—companies in sectors especially susceptible to the economic cycle—are frequently the hardest hit.
Some stock market segments, however, are more resistant to the ups and downs of the business cycle. They provide investors with largely recession-proof stocks, which they may retain during economic instability. If you’re concerned that the economy might enter a difficult period, take a deeper look at where to invest.
The list below outlines some of the companies that performed best during the recession of 2007-2009, or the Great Financial Crisis (GFC).
These companies performed well by total stock return and represented businesses in the S&P 500.
Company Name (Ticker)
1-year Total Return
Dollar Tree (DLTR)
Vertex Pharmaceuticals (VRTX)
H&R Block (HRB)
Old Dominion (ODFL)
Edwards Lifesciences (EW)
Ross Stores (ROST)
Alaska Air Group (ALK)
The list above gives us a good idea about the different industries and companies that might thrive during a recession.
These might offer good returns during the coming storm. But as always, we must do our due diligence before pulling the trigger on any investment.
Also, past results don’t guarantee future results; I know that sucks, but it remains true to this day.
Historically Recession-Resistant Industries
The below industries tend to perform well in both good and bad times. With their steady demand and ability to attract customers from a wide range of demographics, they can thrive during ups and downs.
Education and Learning
Education and learning are among the industries that thrive during a recession for several reasons. As people have less money, they are likely to spend what they have on necessities such as food, clothing, and shelter.
This often leaves little or no money for luxuries such as reading materials or attending seminars.
A recession also creates a need for more education as businesses try to maximize their potential and employees try to expand their skill sets to keep or obtain a job. Individuals may also strive to learn new skills to enter a new field of employment.
Learning institutions, such as colleges and universities, benefit from increased demand during a recession. In addition, businesses may be more likely to invest in training seminars, conferences, and other educational services as they try to avoid layoffs and keep up with the competition.
Home Improvement and Remodeling
The home improvement and remodeling industry tend to thrive during a recession for several reasons. Consumers often have less money to spend during a recession, which leaves less money for home buying.
As a result, homeowners often have to make do with their existing homes, which creates demand for home improvement and remodeling services.
Home improvement and remodeling businesses also benefit from declining new home construction as people are less likely to build or buy new homes during a recession.
In addition, homeowners often look to remodel their existing homes rather than move to new ones.
Several examples of these businesses:
- Home Depot (HD)
- Lowe’s (LOW)
- Sherman Williams (SHW)
- Tractor Supply (TSCO)
- Autozone (AZO)
Healthcare occupies one of the top spots of industries that will thrive during a recession. The demand for healthcare often increases during recessions as people are more likely to get sick. In addition, some people may be more likely to visit their doctor or head to the emergency room for treatment if they do not have health insurance.
This increase in demand often causes healthcare costs to rise, which can, in turn, lead to higher insurance premiums. The higher demand will lead to higher revenues and growth for healthcare during a recession.
Consumers and businesses often seek to cut unnecessary expenses, but healthcare costs don’t fit that bill during a recession.
However, when the economy improves, demand for healthcare often rises as people are more likely to have insurance and access to healthcare providers. This, in turn, creates more business for healthcare providers and jobs in the healthcare industry.
Potential investment targets:
- Johnson & Johnson (JNJ)
- CVS Health (CVS)
- Pfizer (PFE)
- United Health (UNH)
- Elevance (ELV)
- Walgreens Boots Alliance (WBA)
Even in difficult economic times, people must eat. However, customers are increasingly making more meals at home rather than going out to eat. Retailers of packaged foods and grocery stores typically fare well during economic downturns. Similarly, demand for other consumer essentials like personal and household goods tends to remain steady throughout recessions.
Consumer staples manufacturers and retailers include some of the following:
- Kroger (KR)
- PepsiCo (PEP)
- Proctor & Gamble (PG)
- General Mills (GIS)
- Hormel Foods (HRL)
People need food and can only reduce spending on it so much, just like with health care. Several more businesses that produce or market food made a list, in addition to major grocers like Walmart and bargain retailers like Dollar Tree.
They consist of the restaurant chains McDonald’s Corp. (MCD) and Darden Restaurants, Inc. (DRI – owners of Olive Garden and other casual dining chains). Other restaurants that figure to do well during the recession include Texas Roadhouse and Chipotle.
As consumers downshift from luxury dining, companies like Chipotle and Texas Roadhouse offer good substitutes.
And, of course, Starbucks, because no one will give up their coffee!
These are reasonably priced food options since individuals frequently buy cheap things like cereal and choose more affordable eateries when they order takeout or eat out.
Companies in this industry include:
- McDonald’s (MCD)
- Chipotle (CMG)
- Texas Roadhouse (TXRH)
- Yum! Brands (YUM)
- Restaurant Brands International (QSR)
- Starbucks (SBUX)
Freight and Logistics
Regardless of the economy, consumers and businesses need to move goods. There is still a need to transfer commodities to stock store shelves even while personal travel for vacations falls during recessions.
In 2008, C.H. Robinson Worldwide (CHRW), Westinghouse Air Brake Technologies (WAB), and Old Dominion Freight saw profits.
All these businesses, except Westinghouse, either carry freight or produce goods that facilitate freight movement. In a downturn, freight businesses are thus frequently a wise investment.
Businesses in this industry include:
- Old Dominion Freight (ODFL)
- C.H. Robinson Worldwide (CHRW)
- Landstar (LSTR)
- FedEx (FDX)
- United Postal Service (UPS)
During recessions, demand for energy, water, garbage removal, and natural gas remains largely consistent, notwithstanding business closures and job losses.
Throughout recessions, utilities and businesses with similar business models generate stable earnings. Examples of utility-type businesses include:
- American Water Works (AWK)
- Brookfield Infrastructure (BIPC)
- NextEra Energy (NEE)
- Williams Companies (WMB)
- Waste Management (WM)
- Berkshire Hathaway (BRK.B)
Especially in a recession, those with significant assets want to ensure they have their ducks in a row. Financial advisors frequently witness an uptick in business as consumers ask assistance on how to protect their holdings due to concerns about the stability of their investments.
People seek guidance and expertise on economic trends and recovery routes outside personal money issues. As the general public, businesses, and policymakers struggle with the recession, economists frequently witness a tremendous rise in demand for their services and those of consultants, government policy advisors, and even media personalities.
Regardless of the economy, individuals and corporations must pay taxes and maintain a healthy financial situation. In times of economic hardship, it may become even more crucial.
Since many individuals and small businesses may need professional assistance to ensure they are utilizing all of the tax benefits available to them and have a clear understanding of their income and expenses as cash flow becomes more limited, accountants are likely to see an increase in business during a recession.
Additionally, it has become usual for new government benefit programs, loan guarantees, and financial laws to be introduced, revised or expanded during recessions and other economic crises. Accountants may guide clients through the benefits of these changes for their personal and professional finances and the additional requirements that come with them.
If compelled to file for bankruptcy, some people may, at the absolute least, need the help of an accountant.
Potential companies to investigate:
- H&R Block (HRB)
- Intuit (INTU)
Bargain and Discount Stores
Dollar General outperformed all other S&P 500 stocks in 2008, increasing more than 60%, nearly twice as much as the second highest returning stock. With Walmart in sixth place, discount retailers were the only industry to appear twice in the top 10 best-performing stocks of 2008.
Given that consumer income reduces during recessions, this seems logical. When customers’ salaries decline, they have two options: they can either buy fewer items or substitute cheaper goods. You can’t just cut them out of your budget as you could with a new video game because there is a minimum amount of staple products, such as food and basic household supplies, that you must purchase.
That implies you will seek less expensive options to save money on them. Discount retailers will, therefore, probably prosper during a recession.
Potential investments from this industry include:
- Walmart (WMT)
- Dollar General (DG)
- Home Depot (HD)
- Costco (COST)
- Dollar Tree (DLTR)
There will always be recessions. Investors should therefore create fully diversified portfolios to withstand market downturns. Instead of owning many stocks, the secret to building a diversified portfolio is investing in businesses across various industries, especially recession-resistant ones.
A combination of financially sound blue-chip stocks with the resilience to weather a recession should be part of any balanced portfolio. Because they frequently pay dividends, blue-chip stocks appeal to investors during recessions by giving them a measurable return in the form of income.
Blue-chip stocks in businesses that are resilient to recessions frequently exhibit exceptional stability, which can help soften the pain of a market sell-off or recession.
Q: Why Do Some Industries Survive Recessions Better Than Others?
Essentials like food and consumer goods will always be in demand, even in a recession, as people must prepare meals, wash dishes, do laundry, and perform other household tasks.
Because its foundational products are less expensive, discount businesses frequently perform relatively better during recessions. The demand for healthcare also remains constant.
Q: What Indicates a Formal Recession?
Government agencies typically classify the economy as recession when domestic output, real income, and employment fluctuate along with negative GDP growth for two consecutive quarters.
Q: How Long Can Recessions Last?
Recessions can last anywhere from eight to 18 months, according to economic data.
The list above is not all-inclusive because investing during a recession is a vast subject. Other typical defensive investment sectors include utilities (people always need heat and water), personal storage, and real estate (a place to put things when downsizing).
Having said that, this ought to provide you with a decent beginning to begin your search for ways to invest during a recession. What products and services people and organizations can easily live without and which ones are necessary are important considerations. Additionally, consider which establishments people would frequent more if their income drops.
As was already noted, it’s crucial to remember that every recession is unique, and thus, so are the stocks that do well during them.
For instance, the global COVID-19 crisis caused several biotech companies to grow. The 2008 recession, which resulted from a financial crisis, destroyed banking companies.
One other thing to keep in mind is that businesses and stocks that do well during a recession may not always continue to do so once the economy has recovered. Therefore, you will need to adjust your investment plan when the good times come back. Consider it while you develop your portfolio.
As always, balancing and finding the right businesses long-term need to remain your focus, but many of these industries can fit your needs long-term.
With that, we will wrap up our discussion.
Thank you for taking the time to read today’s post. If I can be of any further assistance, please don’t hesitate to reach out.
Until next time, take care and be safe out there,