Some economists have become more cautious in their outlook, given the Federal Reserve’s hawkish stance on inflation. While everyone is hoping that the US economy can avoid a recession, some stocks will do well even in an economic downturn.

This is because while people can cut back on spending on discretionary items like vacations and big-ticket items like cars, they still need to buy basics. Both of these companies offer everyday products that consumers always buy, no matter what happens with their personal financial situation.

Image source: Getty Images.

1. General dollar

General dollar (NYSE:DG) offers most of its merchandise at prices below $10. More than three-quarters of its sales come from consumable categories. This includes toilet paper, paper towels, trash bags, packaged foods (eg, cereal), over-the-counter medications, and soap. In other words, the type of products people should buy. After all, they won’t use fewer paper towels if they’re unemployed.

You can see this by looking at Dollar General’s sales during tough economic days. In the periods ending in January 2009 and January 2010, years that encompassed the Great Recession, comparable store sales (coms) increased 9% and 10%, respectively.

In fact, throughout fiscal 2020 (ended January 29, 2021), the company had a remarkable 31-year streak of positive comps. Last year the streak was cut short when comps fell 2.8%, but that’s because the early days of the pandemic saw strong buying for some products that drove sales this year- the. On a two-year basis, comps increased by 13.5%.

This year, management expects compensation to increase by 3% to 3.5%. The company raised its forecast from its previous expectation by 2.5%.

With low prices on everyday products, vacation items and clothing, it offers a good value proposition. It becomes even more compelling when people are going through tough times.

2. Kraft Heinz

Kraft-Heinz (NASDAQ: KHC) sells condiments like ketchup, cheese and dairy products and frozen foods. Its popular brands include Heinz, Kraft, Oscar Mayer, Velveeta and Maxwell House. These consumer staples generally don’t experience a drop in demand when the economy turns sour.

In the first quarter, Kraft Heinz adjusted sales increased 6.8%. On the positive front, the company was able to pass on cost increases, with the price increase accounting for nine percentage points. Volume/mix drove period sales down 2.2 percentage points, but management blamed this on supply chain constraints.

In other words, demand for its products hasn’t dropped, just the company’s ability to get enough of them on the shelves. This problem has also plagued many consumer goods companies. Management felt confident enough to raise its 2022 sales outlook, now expecting a single-digit percentage increase.

With staples found in many homes, Kraft Heinz offers a stable outlook even if the economy falls into a recession.

When looking for businesses to invest in that will thrive even if the economy is turbulent, it’s important to find those whose demand won’t falter. In the case of Dollar General, its low prices will likely attract customers, an even better scenario. Kraft Heinz probably isn’t so lucky, but people will continue to buy items like ketchup throughout a downturn. This makes them ideal stocks to buy before a recession.

10 stocks we like better than Dollar General
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They just revealed what they think are the ten best stocks investors can buy right now…and Dollar General wasn’t one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

* Portfolio Advisor Returns as of June 2, 2022

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.