Jul 26, 2022
While the official data is yet to indicate a recession, plenty of experts are expecting a major downturn for the U.S. economy.
CNBC’s Jim Cramer, for instance, recently said that “almost no one is talking about avoiding recession anymore because the Fed is slamming the breaks on the economy so aggressively.”
Advertisement
Does that mean it’s time to de-risk and load up on recession-proof stocks?
Thanks for subscribing!
Read the best of Moneywise in 5 minutes or less.
By signing up, you accept Moneywise Terms of Use, Subscription Agreement, and Privacy Policy.
Well, not all recessions are the same, and Cramer sees three different scenarios.
“We’ve got mild, we’ve got moderate and we’ve got severe. Can we avoid a recession altogether? There’s always the chance,” says the Mad Money host.
Cramer also provides his top stock picks for each one of these outcomes.
Mild
Cramer says that the basis for a mild recession is a strong consumer. And he knows consumers are doing well because banks just reported earnings.
“We’ve heard from a number of banks in the last week, and their voices spoke as one. The consumer has a dynamite balance sheet.”
He further explains that with a strong job market and all the money consumers have saved up during the pandemic, it’s possible that they can “ride out a wave of disappointment.”
If the recession turns out to be mild, stocks that have already been badly beaten could provide an opportunity.
Cramer’s favorites in such a scenario include chipmaker Micron (MU), homebuilder D.R. Horton (DHI), media and entertainment conglomerate Disney (DIS), and e-commerce behemoth Amazon (AMZN).
Advertisement
Must Read
- The ultra-rich use these 5 real estate strategies to build wealth while they sleep — you can start with just $100
- Here’s the average income of Americans by age in 2026. Are you keeping up or falling behind?
- Insurance companies profit most from drivers who auto-renew without shopping around. Comparing 100+ quotes takes 2 minutes and costs nothing
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Spicy
If the recession turns out to be spicier than just a mild downturn, Cramer says investors should be more careful.
“You can buy the higher yielding stocks, as interest rates will start to trend down, reducing the bond market competition,” he suggests. “But you’ve got to only buy high yielders that can still make their numbers.”
Cramer points to oil stocks as an example. He likes Pioneer Natural Resources (PXD) for its variable dividend policy — so investors get paid more when things are good. He also likes “half oil, half natural gas” company Coterra Energy (CTRA).
In addition, Cramer suggests dollar stores as a possible hedge against a deeper recession and names two companies: Dollar Tree (DLTR) and Dollar General (DG).
Mad hot
If we are heading towards a severe recession, Cramer says investors should “buy the ultimate defensive plays.”
Advertisement
Even some of his favorites for a milder recession won’t work here.
“If we get more aggressive rate hikes than expected, then stocks like Micron and D.R. Horton — they will be obliterated,” Cramer says, adding that “anything related to advertising, tech and the industrials will crush you.”
So what are the ultimate defensive plays for an ultra-hot recession?
Cramer suggests Johnson & Johnson (JNJ), PepsiCo (PEP) and Constellation Brands (STZ).
Johnson & Johnson is deeply entrenched in the healthcare sector, which is known for being recession-resistant.
Advertisement
PepsiCo is a consumer staples giant with a portfolio of iconic brands like Pepsi-Cola, Mountain Dew, Lay’s, and Quaker — products that consumers would continue to buy even in a severe downturn.
Finally, Constellation Brands is the maker of Corona, Modelo, and Pacifico. Whether boom or bust, beer drinkers drink beer, so the company should remain resilient.
More: What's Jim Cramer's net worth?
You May Also Like
- JP Morgan sees gold hitting $6,000/oz before 2027 — and a Gold IRA lets you hold the physical metal while deferring the tax bill. Get your free guide from Priority Gold
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
