Depending on whom you ask or what financial institution you listen to, the current odds of a U.S. recession in the near term fall roughly between 45% to 60%. The probability has been on the rise of late thanks largely to increased trade policy uncertainty and a potential slowdown in global growth due to U.S. tariffs.
That said, here are two recession-resilient stocks to keep on your radar and found in the unlikeliest of places: the auto industry.
Racing ahead
Ferrari (RACE 1.63%) is well-known for its racing heritage as well as its ultra-luxury vehicles, but it’s not as well-known for its high-flying stock gains — and that’s a shame.
As you can see in the graphic above, Ferrari has not only trounced industry peers with its gains, it’s also lapped the S&P 500. The great news for investors is that the company is darn near recession-proof as well.
One reason is because the automaker’s consumers simply aren’t your average earners, and their wealth enables them to continue buying Ferraris even amid economic uncertainty or downturns. These are committed consumers, too. There are long waiting lists, a mandatory holding policy for vehicle reselling, and a pretty strict approval policy — and many consumers don’t buy just one Ferrari.
Another reason Ferrari is near recession proof is because it purposely keeps the sales volume of its vehicles in check, always ensuring there’s more demand than supply. This helps support pricing power and also provides a little wiggle room for demand in the event of a significant economic downturn.
But don’t let its limited sales fool you, Ferrari is a cash printing machine with margins that more closely resemble ultra-luxury companies rather than mainstream automakers. Further, if you’re craving growth, take the company’s new F80, which was unveiled in October, and its hefty $3.9 million starting price tag to the bank.
Ferrari instantly sold out of the limited models and Anthony Dick, who covers the auto sector for the Paris-based private bank ODDO BHF, told Barron’s that it might only generate 2% of units sold but up to 20% of Ferrari’s profit. In other words, investors can come for the pricing power, lucrative margins, or stock price gains, but you might find yourself staying for its recession resiliency.
Do it yourself
If you thought Ferrari was a nice find, AutoZone (AZO 0.99%) takes it a step further. In fact, AutoZone operates in what’s called a countercyclical industry; meaning demand for auto parts increases when demand for new vehicles falls. That’s why AutoZone has performed so well during recessions as consumers hold onto their cars longer and opt to repair rather than replace.
But really AutoZone stock performs well in just about any market; you can see its consistency in the graphic below.
“This is a defensive, resilient distribution business you can buy at a market multiple with the chance for earnings acceleration,” says Andrew Choi, a portfolio manager at Parnassus Investments, according to Barron’s. “But the multiple doesn’t reflect the durability of its growth, despite the stock’s outperformance.”
There is a long list of things that AutoZone does well, including its superior distribution model that has over 7,000 stores across the U.S., Mexico, and Brazil. A typical AutoZone store may carry 20,000 to 25,000 SKUs, but is backed up by larger hub stores that can carry twice that amount, and then mega-stores that can carry up to 4 times the SKUs.
As a bonus for investors, the retailer also returns massive value to shareholders through share buybacks. In fact, over the past decade AutoZone has reduced its shares outstanding by roughly half. And if you’re worried about all the tariff drama, AutoZone should be resilient to that as well because consumers need their car working, period.
What it all means
It’s not a question of if, but when a recession will arrive. Owning stocks with durable businesses and competitive advantages could provide resiliency or, in AutoZone’s case, even upside if the economy lulls. For those reasons, investors would be wise to keep AutoZone and Ferrari on their watch list regardless of what’s happening with the economy or tariffs.
