Recession-proof businesses

Instead of chasing the exciting high momentum tech names, Schiff suggests looking at recession-proof businesses, especially if they pay reliable passive income to investors.

He says investors should consider assets that “sell products and services that consumers have to buy, not just what they want to buy.”

The reason is simple: With rampant inflation, the products that consumers need will become so expensive that they won't have money left to buy the stuff they want.

“You want to own the companies that sell the stuff that people need to buy, and they can raise prices, and they're paying their earnings to their shareholders in the form of dividends.”

Food and tobacco are good examples, according to Schiff.

People need to eat no matter what happens, and beyond food companies, many sectors support the growing and processing of what ends up on our plates. Meanwhile, the demand for cigarettes is highly inelastic, meaning large price changes only induce small changes in demand — and that demand is largely immune to economic shocks.

Schiff is putting his money where his mouth is.

According to Euro Pacific’s latest 13F filing, its third-largest holding is cigarette giant British American Tobacco (BTI). Its fourth-largest holding is Philip Morris International (PM), another tobacco king.

Both companies pay generous dividends: British American Tobacco yields a whopping 6.8%, while Phillip Morris provides an annual yield of 4.8%.

While Schiff doesn’t own huge stakes in food companies, the fifth-largest holding at Euro Pacific is fertilizer producer Nutrien (NTR). Nutrien does not pay dividends. But as one of the world’s largest providers of crop inputs and services, the company is positioned solidly even if the economy enters a major recession.

You can already see the resilience of these businesses. While the broad market indices have suffered losses in 2022, shares of British American, Philip Morris and Nutrien are all up nicely year to date.

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Precious metals

Raging inflation has brought plenty of attention to precious metals. And the war between Russia and Ukraine gave investors yet another reason to check out the sector.

After all, precious metals like gold and silver are known for being safe-haven assets: in times of crisis, people hold precious metals to protect their wealth.

Schiff likes gold, too. He sees it more as a store of value rather than an investment.

“You hold on to gold to preserve value, because it doesn’t throw off a return like stocks or real estate.”

Schiff explains that in 1971, the world went from a gold standard to a fiat standard. The U.S. dollar is the reserve currency for now, but with massive money printing and huge trade and budget deficits, that status might not hold true for much longer.

“Gold and silver will be big winners in a monetary reset, where the dollar is no longer the reserve currency because when the dollar is out, gold will be back in.”

You can buy physical gold and silver at your local bullion shop. Large miners provide another way to get exposure: When gold prices go up, gold producers tend to enjoy higher revenues and profits.

The two largest holdings at Euro Pacific Asset Management are gold miners: Barrick Gold (GOLD) and Newmont (NEM).

These two companies are delivering solid returns as the yellow metal makes a comeback in 2022. Year to date, Barrick Gold and Newmont shares are up an impressive 30% and 26%, respectively.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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