10 Companies and Industries That Make Money During A Recession

Published on February 12, 2023 at 11:56 am by Fatima Farooq in Economy, Hedge Funds, News

In this article, we will be taking a look at 10 companies and industries that make money during a recession. To skip our detailed analysis of inflation-resistant companies and sectors, you can go directly to see the 5 Companies and Industries That Make Money During A Recession.

The worst economic recession recession recorded in recent history was the 2008 global financial crisis. The crisis began within the US housing market, with home prices rising rapidly in the late 1990s and exceeding income growth by 2000. This created a housing bubble consisting of record-breaking prices for housing in the US, which eventually burst and led to a market collapse for subprime mortgages. In the aftermath, the whole world was forced to bear the brunt of the crisis, with the after-effects of the crisis leaking into the global economy. By analysing the market in the aftermath of the 2008 crisis, and later with additional market research post-COVID-19, financial researchers and analysts have managed to pinpoint several industries that fare well during an economic downturn.

As a result, companies operating within these industries like The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and Walmart Inc. (NYSE:WMT) are often considered to be money-makers in times of recession. According to McKinsey report published in 2009, recession-resistant industries include consumer staples, healthcare, telecommunication services, and utilities, among more. In 2008, the total returns to shareholders fell for all sectors by over 20%, but consumer staples was an exception to this.

A look at the utilities industry, another traditional recession-proof sector, clarified that companies operating in this area were also able to perform much better than others. KPMG’s report on European power and utilities, published in 2021, showed that the deal value of the European power and utilities sector rose by 25% quarter-over-quarter in the fourth quarter of 2021. This came about as a result of higher power prices in the aftermath of the COVID-19 economic downturn. Another example of a fairly recession-resistant industry is the healthcare sector. Research shared by Cushman & Wakefield shows that between 1967 and 2019, American spending on healthcare has been on the rise, even during the recessionary years of 2007-2009. Healthcare spending has been roughly doubling every 13 years, with it accounting for about 18% of the US GDP in 2019, up from 13% in 2000. Consumer spending also steadily rose in the healthcare industry for over 60 years. Between 1959 and 2019, the average annual growth rate was calculated at 3.7%. This stands in stark contrast to the general belief that consumer spending always drops during recessions, and goes to show that some industries can conversely benefit in times of recession, as they offer products and services that cannot be cut out of everyday life for most people.

Let’s now take a look at 10 companies and industries that make money during a recession.

Our Methodology

We have combined data from the Center for Financial Research and Analysis and Bloomberg to pick 10 companies that have proven to perform well during the global recession in 2008. To measure their resistance to recessions, we have considered their stock performance relative to the S&P 500 during 2008, using Yahoo Finance’s historical stock price data where needed. We also mentioned analyst price targets and ratings for the company’s stocks. They are ranked based on their outperformance relative to the S&P 500 in 2008, from the lowest to the highest percentage.

Companies and Industries That Make Money During a Recession

10. The Walt Disney Company (NYSE:DIS)

Industry: Movies and Entertainment

S&P 500 Outperformance in 2008: 8.8%

The Walt Disney Company (NYSE:DIS) is a world-renowned entertainment company. It operates through its Disney Media and Entertainment Distribution, and Disney Parks, Experiences, and Products segments. The company is based in Burbank, California.

On January 24, Wells Fargo analyst Steven Cahall reiterated an Overweight rating on The Walt Disney Company (NYSE:DIS) shares, alongside a $125 price target.

The Walt Disney Company (NYSE:DIS) has diversified its business to include not only media entertainment but also recreational theme parks and experiences. One result of such diversification has been the company’s resilience in times of economic turmoil. During the 2008 financial crisis, The Walt Disney Company (NYSE:DIS) shares outperformed the S&P 500 by 8.8%. More recently, during the COVID-19 pandemic in 2020, while Disney’s theme parks and cruise business were shut down, Disney+ streaming subscriptions surged to include 73.7 million subscribers by November 2020, relative to the company’s goal to reach between 60 million to 90 million subscribers by 2024. Such growth allowed the company to outperform the S&P 500 by 9% in 2020 as well.

The Walt Disney Company (NYSE:DIS), like The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and Walmart Inc. (NYSE:WMT), is a recession-resistant company investors should look at today.

9. Synopsys, Inc. (NASDAQ:SNPS)

Industry: Information Technology

S&P 500 Outperformance in 2008: 9.9%

Synopsys, Inc. (NASDAQ:SNPS) is an application software company providing electronic design automation software products used in the design and testing of integrated circuits. The company is based in Mountain View, California.

Peter Sazel at Atlantic Equities re-initiated coverage of Synopsys, Inc. (NASDAQ:SNPS) shares on January 17 with an Overweight rating and a $390 price target.

Synopsys, Inc. (NASDAQ:SNPS) is a leading technology company that offers a platform for the testing of semiconductor chips and software applications. Analysts consider the semiconductor industry to be a secular growth market, meaning the demand for chip testing and designing services is likely to remain constant even during recessions. This belief is supported by the performance of Synopsys, Inc. (NASDAQ:SNPS) during the 2008 recession when the company outperformed the S&P 500 by 9.9%. Even during the market downturn in 2020, the company outperformed the S&P 500 by 70%.

TimesSquare Capital Management, an equity investment management company, mentioned Synopsys, Inc. (NASDAQ:SNPS) in its third-quarter 2022 investor letter. Here’s what the firm said:

“New to the strategy this quarter was Synopsys, Inc. (NASDAQ:SNPS), a provider of electronic design automation software products used to design and test integrated circuits. The electronic design automation market is a essentially a duopoly with one other major player in the space. As such, the barriers to entry are very high and will likely remain that way due to rising chip complexity.”

8. T-Mobile US, Inc. (NYSE:TMUS)

Industry: Communication Services

S&P 500 Outperformance in 2008: 14.8%

T-Mobile US, Inc. (NYSE:TMUS) is a wireless telecommunication services company providing mobile communications services in the US, Puerto Rico, and the United States Virgin Islands. The company is based in Bellevue, Washington.

An Overweight rating was reiterated on T-Mobile US, Inc. (NYSE:TMUS) shares on January 5 by analyst Philip Cusick at JPMorgan. The analyst also placed a $200 price target on the stock.

T-Mobile US, Inc. (NYSE:TMUS) has become the second-largest US wireless provider after its merger with Sprint. The company managed to beat the odds during the global 2008 recession by outperforming the S&P 500 by 14.8%. It also outperformed the benchmark index by 55.7% in 2020. Since T-Mobile US, Inc. (NYSE:TMUS) is now an even more significant player in the communication services industry, it may prove to be recession-resistant in the coming years as well, due to its ability to outgrow its primary competitors.

7. Netflix, Inc. (NASDAQ:NFLX)

Industry: Movies and Entertainment

S&P 500 Outperformance in 2008: 21.37%

Netflix Inc (NASDAQ:NFLX) is another entertainment and streaming company on our list. It offers TV series, documentaries, feature films, and more on its platform. The company has recently also added mobile games across different genres and languages to its arsenal of products.

Joseph Bonner at Argus holds a Buy rating on Netflix Inc (NASDAQ:NFLX) shares as of January 23. The analyst also raised his price target on the stock from $340 to $390.

Between October 9, 2007, and March 9, 2009, Netflix Inc (NASDAQ:NFLX) brought in a total return of 68.9%, according to Bloomberg. The company is also a lower-cost entertainment option compared to peers like The Walt Disney Company, ensuring that during recessions, consumers on the lookout for cheaper entertainment options would gravitate toward it. Netflix Inc (NASDAQ:NFLX) also outperformed the S&P 500 by 21.37% in 2008, and its subscriber growth increased by 26% to 9.3 million during the same year. This shows that the company was able to actually perform better during an economic downturn.

Polen Capital, an investment management company, mentioned Netflix Inc (NASDAQ:NFLX) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“Netflix, Inc. (NASDAQ:NFLX) has nearly doubled since its May 2022 lows and was our top performer for both the quarter and the year. In the summer, we added to our position meaningfully after our research indicated that the company’s two new monetization levers (requiring fees for shared passwords and the introduction of an advertising-supported subscription) would be very additive to the company’s revenue and profits beginning in early 2023. The company has since announced plans to disallow password sharing, which should provide a boost to revenue and profit growth nearly immediately as account holders or those that are borrowing passwords are required to pay to continue to watch Netflix content. The ad-supported subscription tier should also be a clear positive, not only for the company’s financials but also for consumers and marketers alike. While the subscription fee for the ad-supported tier is only about $7/month in the U.S., the ad revenue per subscriber that Netflix earns for consumers choosing this option could easily add another $15 per month or more in the U.S., potentially making Netflix’s ad-supported subscription tier the company’s most revenue generative and profitable. Even if more premium subscribers than expected downgrade to the adsupported option, we think there should be significant revenue uplift for Netflix. It appears market participants have been doing this math as well, driving the stock price higher over the last seven months.”

6. The Home Depot, Inc. (NYSE:HD)

Industry: Home Improvement Retail

S&P 500 Outperformance in 2008: 23.9%

The Home Depot, Inc. (NYSE:HD) is a consumer discretionary company operating Home Depot stores across the US. The company sells home improvement products, maintenance, repair, and operations products, and much more. It is based in Atlanta, Georgia.

On December 13, Max Rakhlenko at Cowen reiterated an Outperform rating on The Home Depot, Inc. (NYSE:HD) shares. The analyst also raised his price target on the stock from $350 to $379.

Typically, sales for a company like The Home Depot, Inc. (NYSE:HD) would fall during a recession because of decreased consumer spending. However, the company is well-versed in allocating capital in a way that grows its value. Over the past 10 years, the company’s profit margin increased from 6% to 11%. The Home Depot, Inc. (NYSE:HD) also outperformed the S&P 500 by 23.9% in 2008. Additionally, in 2020 it was seen that interest rate cuts and a lack of entertainment activities in 2020 actually led to a boom in the housing and home improvement markets. So in 2020, The Home Depot, Inc. (NYSE:HD) outperformed the benchmark index by 5.3% as well.

The Home Depot, Inc. (NYSE:HD), like The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and Walmart Inc. (NYSE:WMT), is a company that has managed to beat the odds during recessions in the past, making it a safe option for investors as well.

Click to continue reading and see the 5 Companies and Industries That Make Money During a Recession.

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Published on October 30, 2024 at by Inan Dogan, PhD

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Published on November 16, 2024 at by Insider Monkey Staff

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