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Which shares will do well in a recession?

There is a lot more talk of a recession for Australia right now. Or, at least the chance of a technical recession. A falling housing market, rising mortgage stress and falling construction approvals all point to slower growth in the near future.

The economy only needs two quarters of GDP contraction for it to be called a recession. I think this measure is somewhat flawed – a rising population supports GDP growth considerably. If it was measured as GDP per capita/person it would probably be a more accurate measure.

Anyway, in the event of a recession many sectors often go backwards. Financials like Commonwealth Bank of Australia (ASX: CBA) should fall, discretionary spending businesses like JB Hi-Fi Limited (ASX: JBH) may decline, new car sales would drop off for Automotive Holdings Group Ltd (ASX: AHG) and so on.

But, there are some businesses that historically do better. Gambling shares may get a boost as people roll the dice to try to win big to get out of their recession troubles. That may lead to Crown Resorts Ltd (ASX: CWN) and Tabcorp Holdings Limited (ASX: TAH) seeing an uptick.

A lot of people also have the tendency to eat poorer diets, particularly fast food. If people want a greasy food fix then Collins Foods Ltd (ASX: CKF) and Domino’s Pizza Enterprises Ltd. (ASX: DMP) could be in for a boost.

Foolish takeaway

However, it doesn’t matter too much to me if a recession happens from the investment side – I invested in my holdings for the long-term, with the expectations that there would be dips along the way.

If a recession does happen then I imagine I will be able to buy some of my shares at attractive beaten-down prices.

However, this top share could be the biggest winner of all in a recession – indeed it’s focused towards people not having much cash to spend.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Automotive Holdings Group Limited, Collins Foods Limited, and Domino's Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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