Tthere really is no such thing as a recession proof business. Different types of recessions can impact different industries and businesses. However, if you’re looking for good stocks to buy when the market inevitably goes down, you want companies that are likely to get through the next downturn to look even stronger.
Recessions generally have a greater impact on companies that are overvalued. When a downturn hits, people scramble for safe-haven investments, and that’s why I recommend Louisiana-Pacific (NYSE: LPX), Johnson & johnson (NYSE: JNJ) and Target (NYSE: TGT). They have the kind of growth that can withstand recessions, but aren’t overvalued based on their price-to-earnings (P / E) ratios. Plus, all three reward patient investors with quarterly dividends.
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Stick with Louisiana-Pacific for stability and some growth
Louisiana-Pacific is a lumber company that manufactures a variety of construction products, such as OSB, siding, trim, L-joists, and engineered lumber. The company is present in the United States, Canada, Chile and Brazil.
Louisiana-Pacific has grown steadily. Over the past three years, the share price has increased by over 124% while the company’s revenue has climbed 79.78% and earnings per share (over the past 12 months) increased by 235.9% over this period.
The company recently increased its dividend by 13% to $ 0.18 per share, which works out to a return of 1.18%. The stock is up over 71% this year, but it’s still a bargain based on its P / E ratio of 5.4 and its forward P / E of 4.8.
In the second quarter, the company achieved record net sales and earnings before interest, taxes, depreciation and amortization, or EBITDA. Net sales for the quarter were $ 1.3 billion, up 142% year-on-year, and Adjusted EBITDA was $ 684 billion, up 16.5% from the same period in 2020.
Louisiana-Pacific also spent $ 465 million in the quarter to repurchase 7.3 million shares, adding value for its investors. The company has increased earnings per share for five consecutive quarters. The housing shortage that has driven up home costs means home builders have a long way to go to catch up with demand, and Louisiana-Pacific is expected to benefit from an increase in home construction.
Johnson & Johnson can’t be stopped
The key to Johnson & Johnson’s strength is its size and diverse revenue streams. The company’s stock is up about 3% for the year and its P / E is 24, lower than the industry average of 27.
When the pandemic struck in 2020, the company’s shares quickly fell from $ 151.80 on February 2 to $ 109.16 per share on March 23, but then quickly rose to the surface, hitting $ 152.30 on April 17, more than before the start of the pandemic. It’s a business built for the long haul. Over the past five years, revenue is up 30.87% and earnings per share (diluted) is up 53.39%.
The company is a Dividend King that has increased its dividend for 59 consecutive years, including a 5% increase this year to $ 1.06 per share. As of this writing, that works out to a return of 2.56%.
In the second quarter ended July 21, the company reported revenue of $ 23.3 billion, up 27.1% year-over-year. Earnings per share were $ 2.35, up 72.8% from the same period in 2020.
The company has 136,000 employees and operates in three segments, all of which have improved sales this year: medical devices, consumer health and pharmaceuticals. The medical devices segment saw the largest increase in the quarter, year over year, as it was hit the hardest by the pandemic. In the second quarter, the company reported medical device sales of $ 6.9 billion, up 62.7% year-over-year.
The highest-paying segment of the company is pharmaceuticals, which reported sales of $ 12.6 billion in the quarter, up 17.2% from the same period in 2020. On top of that, the company obtained five approvals between the United States and Europe during the period, which would have been considered a large year for most pharmaceutical companies.
The target continues to evolve
Target is one of the few retail stores that has figured out how to use online sales while maintaining in-store business. The company has increased its revenue and EPS for four consecutive years. Target’s stock is up more than 35% this year, but its forward P / E (TTM) and P / E ratios hover around 18.
The company became a dividend king this year when it increased its dividend for the 50th consecutive year, increasing its quarterly dividend by 32% to $ 0.90 per share, which works out to a return of around 1.23 %.
There are a few things that make Target better structured to survive an economic downturn. First of all, he actually saw sales increase during the pandemic. Its stores have grocery sections and people tend to eat more at home when they want to save money, or as in the case of the pandemic, when eating out becomes a risk. The company has also done a great job of providing fashionable clothing at competitive prices.
In the second quarter, the company reported revenue of $ 25.2 billion, up 9% from record growth in the same quarter last year. Digital sales were up 10% year-on-year, driven by same-day services, and diluted EPS was $ 3.65, an 8.9% improvement from the same quarter last year.
The choice is yours
To me, it makes sense to buy all three of these stocks when their stocks are falling or if the general market seems to be going through a downturn. Louisiana-Pacific has had the most impressive run in the past three years despite the pandemic, and its low rating makes it the easier choice for me. Target would be my second choice as it appears to be thriving as other retailers struggle and has seen strong share price growth as well. I also like Johnson & Johnson because he has the best dividend of the three, although the growth of his share is the slowest. The size of the business makes it more capable of handling the market disruptions that are sure to occur over time.
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Jim Halley owns shares of Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.