If you want to invest in ASX shares for the long term (which I think is a great idea!), owning shares during a recession will be inevitable. It's just a matter of when. And while I don't believe it's a good idea to pay too much attention to the media in an attempt to predict the timing of one, I do believe there are some ASX shares that have more defensive earnings to help see your portfolio through the tough times.
Woolworths Group Ltd (ASX: WOW)
An obvious first choice I'm sure for most people when they think of a recession-proof stock. With over 1,000 stores, Woolworths is Australia's largest supermarket operator. Although during a recession premium foods may not be as desirable to consumers, everyone will still need food to eat, laundry detergent to wash clothes and toothbrushes for their teeth. In fact, you could even make the argument that during a recession families may not eat out as much, choosing to buy more groceries and do more cooking themselves.
Looking back to the GFC, Woolworths' share price experienced relatively low volatility. Additionally, during this time it managed to increase its dividends while the dividends of most other companies were being cut.
Transurban Group (ASX: TCL)
Transurban operates toll-roads in both Australia and North America. It has a growing portfolio of assets, which now includes the M5 West. And thanks to population growth and denser cities, it also has a strong source of revenue growth driven by traffic growth. Because traffic is inevitable – people still need to drive through the cities during a recession – Transurban's assets provide a defensive income.
Growth in toll revenue may slow, however. This is thanks to its toll growth mechanism, which generally provides increases via a reference to inflation.
Bapcor Ltd (ASX: BAP)
Operating in more than 950 locations, Bapcor runs a range of wholesale, trade, retail and service stores. This makes it the second largest second-hand car parts dealer in Australia and New Zealand, but the company has also started expanding into Thailand.
New vehicle sales have declined over the past 2 years, ending 4 years of year-on-year growth. If a recession were to hit, I believe we would continue to see a decrease in new vehicle sales, as owners hold onto their current vehicles longer to reduce discretionary spending. I believe this could bode well for many of Bapcor's stores as older cars require more services and repairs.
Foolish takeaway
When looking for recession-proof shares, an important aspect is to consider what product or service will be required throughout the business cycle. I believe the 3 companies mentioned above offer products and services that will all continue to see a strong demand. I wouldn't go so far as to say that they won't be affected if a recession were to hit, but the continued demand should help them weather the storm more favourably.
