The prospect of an economic recession is not a pleasant one for any Australian, but particularly for ASX stock market investors. After all, past recessions have often been accompanied by stock market corrections and even crashes.
As a general rule, I advocate that all investors assume a recession is on the horizon and construct their portfolios accordingly. Recessions are an inevitable travelling companion of our capitalist economy. If you aren't comfortable holding a certain company during a recession, you probably shouldn't own it. After all, no one would advocate buying a house with a hole in the roof just because the sun is shining.
But some quality ASX shares are still more 'recession-proof' than others. So with that in mind, let's talk about one ASX stock that I'd be as happy as Larry to buy today and hold through a recession.
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An ASX stock that I'd buy and hold through a recession
That ASX stock is Coles Group Ltd (ASX: COL). Coles is an ASX 200 blue-chip stock that would need little introduction to most Australians, given most of us probably visit a Coles grocery store on at least a semi-regular basis.
Coles is the second-largest grocer and supermarket operator in the country, behind its arch-rival Woolworths Group Ltd (ASX: WOW). Unlike Woolworths, which also owns the Big W department store chain, Coles is basically a one-person show. Its business is dominated by its eponymous grocery network, although the company also owns the Liquorland, Vintage Cellars and First Choice bottle shop chains.
So why Coles as an ASX stock to buy and hold during a recession?
Well, it's mostly Coles' nature that attracts me to this stock as a defensive portfolio holding. Coles is a consumer staples giant. An ASX consumer staples stock is a company that produces, manufactures or sells items that we tend to need, not want. In this company's case, that would be the food, drinks and household essentials that Coles specialises in.
Demand for Coles' products tends to be highly inelastic, meaning that demand remains fairly consistent, regardless of the economic weather. Our need to continuously buy food and stock our households is constant.
Sure, customers might want to spend more when times are good and less during tough times. But overall, customers will keep on coming through Coles doors in good times and in bad. And that makes this ASX stock a great investment for any investor worried about a recession.
Coles as a defensive investment
We saw Coles' resilience on display during the onset of the COVID-19 pandemic back in 2020. In the worst throes of that recession, Coles was able to maintain and even increase its sales and deliver some healthy dividend rises to boot.
Sure, that wasn't an ordinary recession. However, I think it demonstrates this company's resilience and defensive qualities.
Today, Coles shares aren't as cheap as they have been in recent years. At the current Coles share price of $18.09 (at the time of writing), this ASX stock has a price-to-earnings (PE) ratio of 23.15. But the company's dividend yield (which comes with full franking credits attached) stands at a decent 3.65%. That yield grosses up to 5.21%, with the value of those credits included.
As such, I think Coles is still a solid pick today for any investor who wants to buff up their portfolio's defensive qualities. In my view, this is one ASX stock that any investor can feel comfortable holding in a recession.
