The ASX share market is going through significant volatility in August, seemingly due to the worry that the risk of a recession in the US is rising.
High interest rates are designed to slow economic demand, yet the US economy has been surprisingly resilient during this era of high rates. However, we may now be starting to see some pain. The number of US jobs added in July was significantly lower than expected.
Share price declines are one thing, but if the US goes into recession, the earnings of some businesses could be hurt.
No business is completely immune to share price declines – indiscriminate selling can hit all stocks. However, there are a few ASX shares whose earnings may be labelled recession-proof. I'll discuss two of them below.
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Lottery Corporation Ltd (ASX: TLC)
This is the company behind Australia's largest lottery games, operating in every state and territory except Western Australia. It's home to The Lott and Ken brands.
Why could this business be called recession-proof? It's because of what can happen when a country goes through tougher economic times. According to the University of Sydney:
In times of economic recession, gambling, particularly on lotteries, usually stays strong. Gambling during recession times is typically highest amongst those who are experiencing the greatest financial hardship as it represents a potential way out.
They don't even need to win for the lottery ticket to potentially be worth buying – the feeling of hope can be a compelling factor in buying lottery tickets.
Increasing its amount of digital sales is an important part of the company's initiatives because the ASX share is expecting to deliver "long-term margin expansion."
Digital lottery tickets may be seen as more convenient, which is useful for time-poor individuals. Increasing usage of smartphones and the lottery app could lead to stronger results for The Lottery Corporation.
I believe this company has the potential for steady performance in the next few years, although I don't anticipate significant growth.
Washington H. Soul Pattinson and Co Ltd (ASX: SOL)
Soul Pattinson is an investment conglomerate business that has been listed for approximately 120 years.
It's invested in various, largely uncorrelated industries, including telecommunications, resources, swimming schools, agriculture, financial services, credit, electrification, property, and so on. These assets provide resilient cash flows for Soul Patts, which can then be used to pay a growing dividend and fund new investments in growth opportunities.
In my opinion, its defensive portfolio is capable of outperforming the wider share market and economy, making it a somewhat recession-proof ASX share.
This business has already survived through two world wars, two global pandemics, numerous recessions and various political changes. Impressively, it has paid a dividend every year since it listed 120 years ago.
I think it's an appealing long-term investment play that will likely be around in 10 or 20 years or even longer.
