Markets are pricing in a higher chance of a recession. That’s led to fast deleveraging by hedge funds, sending the market into a tailspin. But some companies are more recession-resistant than others.
Investors can hold up during a fearful market with more recession-resistant companies. That includes goods and services that have strong demand, no matter what the economy is doing. Investors who buy these companies during periods of fears can earn reasonable returns while the economy sorts itself out.
For instance, plumbing-equipment distributor Ferguson (FERG) fell following its latest earnings. The company blamed deflation, or falling prices as part of the reason for the pullback.
Ferguson shares trade at 16 times earnings, a healthy discount to the overall market. While growth has been lackluster, at about 3%, demand for plumbing services tend to hold steady no matter what happens in the overall economy.
Action to take: Ferguson has pulled back to the low $150 range, where the stock has had ample support over the past few years. If shares rebound to their old highs, they could see 25% gains or more in the months ahead.
Plus, at current prices, Ferguson pays a 2.1% dividend.
For traders, the June $175 puts, last trading for about $4.60, could see mid-double-digit returns on a bounce higher in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.