Could buying Woolworths shares help 'recession-proof' your ASX portfolio?

This expert says ASX 'essentials' shares are good buying in a recession.

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Key points
  • This expert says 'essentials' ASX shares are good buying in a recession
  • Essentials shares include supermarkets, consumer staples, healthcare, telecommunications, and utilities
  • The Woolworths share price is in the green today 

The Woolworths Group Ltd (ASX: WOW) share price is up 0.45% to $33.51 at the time of writing.

Woolies is part of the S&P/ASX 200 Consumer Staples Index (ASX: XSJ), which is also up 0.63% today. Consumer staples are things people can't live without, such as food and other essential groceries.

These stocks tend to do well — or at least demonstrate more resilience — during tough markets.

Despite rising inflation and interest rates, people are still going to buy food and other critical supplies.

That means consumer staples businesses are still going to make good money. They also won't face as big a demand risk as consumer discretionary businesses tend to see in tough economic times.

This is why ASX staples are considered defensive shares and a good way to recession-proof your portfolio.

A woman ponders over what to buy as she looks at the shelves of a supermarket.

Image source: Getty Images

Buy ASX shares representing the 'essentials'

Paul Taylor is the portfolio manager and head of Australian equities at Fidelity International.

Writing on Livewire today, Taylor says:

History demonstrates that businesses that provide essential goods and services perform well through inflationary periods and recessions.

By their nature they are 'essential' and people continue to buy and consume these products and services regardless of market conditions.

In addition, these types of businesses are in a much better position to pass on higher input costs once again because they are essential. Inflation actually helps them grow.

Examples of essential businesses include supermarkets, consumer staples, healthcare, telecommunications, and utilities.

The ASX supermarket shares

There are three main players among the ASX supermarket shares. They are Woolies, Coles Group Ltd (ASX: COL), and Metcash Limited (ASX: MTS), which owns the community chain IGA.

Woolworths is by far the biggest with a market capitalisation of $40.6 billion. Coles has a market cap of $22.2 billion while Metcash has a market cap of $3.8 billion.

Let's compare their performance over the year to date and over the past five years.

Woolworths share price outperforms the others long term

The Woolworths share price is down 13% in the year to date and up 55% over five years.

The Coles share price is down 7% in the year to date and up 30% over five years.

The Metcash share price is down 11% in the year to date and up 50% over five years.

The five-year results aren't staggering but these ASX shares have plenty of investor support. This is because they provide peace of mind, reliability, and stability in hard economic times.

They also pay good dividend yields. Arguably, reliable income streams are another way to recession-proof a portfolio. Food for thought.

According to the ASX website, Woolworths is paying a dividend yield of 2.75% today.

By comparison, Coles is paying a yield of 3.7% and Metcash is paying a yield of 5.5%.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. 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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