7 Recession Stocks That Can Survive Stagflation

With the major equity indices printing gallons of red ink this year, investors naturally began searching for recession stocks. However, a new source of anxiety now appears on the horizon: stagflation.

Per NerdWallet, stagflation represents higher consumer costs merging with rising unemployment and little, if any, economic growth. Recently, World Bank President David Malpass stated that it could take years for global energy production to diversify away from Russian hydrocarbons, according to Reuters. Unfortunately, this dynamic prolongs the risk of stagflation, thus necessitating a search for recession-resistant stocks to buy.

During a speech at Stanford University, Malpass warned that there was an increased likelihood of recession in Europe. In addition, China’s growth was slowing sharply and U.S. economic output contracted in the first half of the year. Therefore, the Federal Reserve has a mighty tough job ahead of it, further bolstering the case for recession stocks to buy.

True, the Fed remains committed to tackling inflation through raising the benchmark interest rate. At the same time, too aggressive of an approach could lead to high unemployment. Therefore, the uncertainties force closer examination of recession stocks to buy.

DG Dollar General $240.67
DLMAF Dollarama $57.41
CL Colgate-Palmolive $72.54
MCD McDonald’s $235.27
LOW Lowe’s $191.34
ETR Entergy $104.88
PGR Progressive $117.98

Dollar General (DG)

Dollar General (DG) store front with yellow store sign, midday

Source: Jonathan Weiss / Shutterstock.com

Headquartered in Goodlettsville, Tennessee, Dollar General (NYSE:DG) is a popular dollar store chain. As of April of this year, the company operates 18,216 stores in the continental U.S. Featuring everyday household items at sharply discounted prices, Dollar General easily represents one of the best recession-resistant stocks to buy.

While not the greatest performance by itself, DG stock has gained more than 2% since the start of the year, at the time of writing. However, compared to benchmark S&P 500 index, which is down more than 22% during the same period, the resilience of DG implies that it can potentially survive a recessionary shock — or even stagflation.

At the moment, DG features a strong buy consensus rating among 17 Wall Street analysts, per TipRanks. Dollar General has an average price target of $276.31, representing 14.7% upside from the time of writing.

Per Gurufocus.com, Dollar General features a fairly valued financial profile. Notably, the company enjoys strong profitability metrics, particularly a net margin of nearly 6.6%.

Dollarama (DLMAF)

Dollarama logo in front of their local shop in downtown Montreal, Quebec.

Source: BalkansCat / Shutterstock.com

Operating under a similar principle to Dollar General above, Dollarama (OTCMKTS:DLMAF) offers international exposure to investors of recessions stocks. Headquartered in Montreal, Dollarama is a Canadian discount retail chain. It has over 1,400 stores and a presence in every province in Canada.

Unsurprisingly, DLMAF has performed well this year, gaining almost 15% at the time of writing. With the U.S. benchmark equity index down in bear market territory, any investor will take that. Fundamentally, Dollarama offers everyday household goods at low prices, making DLMAF an effective name among recession stocks to buy.

Currently, the security enjoys a strong buy consensus rating among nine analysts, per TipRanks. DLMAF’s average price target is $64.29, reflecting 11% upside from the close of the Sept. 28 session.

To be fair, Gurufocus.com rates DLMAF as modestly overvalued. However, the underlying company does feature excellent growth and profitability metrics. In particular, Dollarama features a net margin of 16%.

Colgate-Palmolive (CL)

Colgate toothpaste and mouthwash in a cup with a toothbrush

Source: monticello / Shutterstock.com

A multinational consumer products company, Colgate-Palmolive (NYSE:CL) specializes in various household and personal care products. Of course, it’s probably best known for its toothpaste brand Colgate. Considering the relative price inelasticity of the underlying products (i.e., even in an economic downturn, people will still brush their teeth), CL represents one of the best recession stocks to buy.

At the moment, Wall Street doesn’t see it that way. On a year-to-date (YTD) basis, Colgate-Palmolive shares have slipped nearly 15%. Over the trailing month, CL has lost more than 8% of its market value. Still, this framework presents a potential acquisition opportunity for a standout among recession stocks to buy.

According to Gurufocus.com, the investment resource labels CL as modestly undervalued. Notably, the underlying firm enjoys robust profitability metrics. For instance, Colgate-Palmolive’s operating margin stands at 20.6%. In contrast, the industry median is 4.7%.

Just be warned, though, that covering analysts don’t quite see CL as a buy. Presently, it features a hold rating, although with a $81.50 price target, that implies 12% upside.

McDonald’s (MCD)

McDonald's restaurant in Thailand.

Source: Tama2u / Shutterstock

An iconic fast-food chain, McDonald’s (NYSE:MCD) represents American capitalism at its finest. Either way, investors can’t deny that MCD presents a compelling idea for recession stocks to buy. Sure, one doesn’t need to order food from the Golden Arches. However, with its sodium-rich products generating significant cravings, McDonald’s essentially has a hostage audience.

Should stagflation become the norm moving forward, investors will need to get their return any way possible. If a little cynicism is thrown into the mix, so be it. At the time of writing, MCD stock is down 12% YTD. Therefore, the market doesn’t quite see the optimistic angle for the fast-food giant. However, if the economy declines, MCD could benefit from the trade-down effect.

At the moment, Gurufocus.com labels MCD as fairly valued. The standout financial metrics for the business is profitability, particularly its red-hot net margin of nearly 26%.

In addition, MCD features a strong buy consensus rating among 26 analysts. It also has a price target of $281.84, implying 19% upside potential.

Lowe’s Companies (LOW)

the front of a Lowe's store

Source: Helen89 / Shutterstock.com

Headquartered in Mooresville, North Carolina, Lowe’s Companies (NYSE:LOW) specializes in home improvement products. Like its rival Home Depot (NYSE:HD) and others, Lowe’s represents an essential business, thus staying open during the initial onset of the coronavirus pandemic. Undoubtedly, this action helped the country cope with the crisis. Now, with stagflation possibly on the horizon, Lowe’s may be able to benefit consumers again.

Fundamentally, the company provides the products that everyone needs. Further, the home repair and maintenance industry is relatively inelastic — recession or not, stuff happens. Therefore, LOW is an ideal name among recession stocks to buy.

Enticingly, Gurufocus.com labels Lowe’s as a modestly undervalued business. While the company features an okay balance sheet, it comes alive in the growth and profitability departments. Its three-year revenue growth rate stands at 16.2%, above the industry median of 2.2%. Also, its net margin is 8.8%, far better than the industry median 2.5%.

Entergy (ETR)

Entergy sign at their headquarters in New Orleans

Source: JHVEPhoto / Shutterstock.com

An integrated energy company, Entergy (NYSE:ETR) primarily focuses on electric power production and retail distribution operations in the southern U.S. Per its website, Entergy “delivers electricity to 3 million utility customers in Arkansas, Louisiana, Mississippi and Texas.”

Fundamentally, utility firms represent one of the best recession stocks to buy. Whether you anticipate a sharp downturn or even stagflation, communities still need access to their electricity. Therefore, the demand profile for Entergy and related businesses is inelastic. Whether prices move up or down, consumer habits generally remain the same.

Specific to Entergy, though, the company also organically advantages migration trends. As several news outlets mentioned, Texas ranks as the top destination for millennials.

Per Gurufocus.com, ETR rates as fairly valued. One standout metric is its gross margin, which at 41.4% ranks above the industry median of 28.4%. Also, according to TipRanks, Entergy enjoys a moderate buy consensus rating among nine analysts. It features a price target of $130.11, representing 21% upside potential.

Progressive (PGR)

A white car with the Progressive logo written across the doors in big blue letters

Source: Shutterstock

One of the most relevant recession stocks to buy, Progressive (NYSE:PGR) garners the most attention for its auto insurance business. What I like here is that state governments effectively enforce Progressive’s hostage audience. With the exception of Florida, “every state requires bodily injury liability insurance (BI), while all 50 states plus Washington, D.C., require property damage liability (PD),” according to ValuePenguin.com.

Sure enough, PGR is a winner in the charts, gaining nearly 16% YTD. Over the trailing year, PGR gained nearly 31%. To be clear, PGR might not deliver resounding gains from here on out. But it’s likely that it won’t succumb to the pits, again because of its unignorable business.

Admittedly, Gurufocus.com labels Progressive as modestly overvalued. However, one bright spot is the company’s excellent growth rate. Over the past three years, it features expansion in the top line of 14.2%, better than the industry median’s 6.8%.

According to TipRanks, PGR does have a hold consensus rating. Its price target is $124.57, implying a 5% gain.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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