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Which industries should you invest in during a recession?

Which industries should you invest in during a recession?

It’s a very good question. There’s a reason why recessions are painful and why they’re bad for the economy; recessions affect nearly all industries.

Sure, share prices are going to drop nearly across the board. Investors are going to get nervous. But what about the actual earnings of a business?

It’s easy to say that gold would likely be a good pick. For some reason investors have decided that every time the market faces difficulties it should mean that the gold price should go up. And therefore gold miners like Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) see a rise.

There’s a long list of industries that could face a problem. Banks like Westpac Banking Corp (ASX: WBC) wouldn’t have a nice time. Other financial companies like IOOF Holdings Limited (ASX: IFL) would probably suffer. Retailers like Harvey Norman Holdings Limited (ASX: HVN) would likely face lower earnings. And so on.

Supposedly, in a recession there is an uplift in fast foot eating and gambling when times get tough. Perhaps that means Domino’s Pizza Enterprises Ltd. (ASX: DMP), Collins Foods Limited (ASX: CKF), Tabcorp Holdings Limited (ASX: TAH) and Aristocrat Leisure Limited (ASX: ALL) would see growth. 

There’s an argument that auto parts would be a good industry because people would be more likely to replace a car part than buy a whole new car, which would be good for Bapcor Ltd (ASX: BAP) if that theory is true.

There are also a few industries where the effect would hopefully be minimal. Households would need to keep paying their utility bills to keep the power on, so AGL Energy Ltd (ASX: AGL) may be a defensive idea.

There are several real estate investment trusts (REITs) that have contracted rental income, so Rural Funds Group (ASX: RFF) could be a solid idea.

A recession is certainly not likely to decrease the amount of deaths Australia experiences each year, so InvoCare Limited (ASX: IVC) and Propel Funeral Partners Ltd (ASX: PFP) would likely not see a big difference.

Foolish takeaway

There are some sectors that could genuinely see a rise in earnings in a recession. But that isn’t a guarantee and share prices would certainly be volatile during that time. 

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia has recommended Collins Foods Limited, Domino's Pizza Enterprises Limited, InvoCare Limited, and Propel Funeral Partners Ltd. 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.