Many professional investors and fund managers were sitting on enormous book profits since 2009 after the immense stock market rise. And higher the prices rose, the more lucrative it became for these institutional investors.

The Corona crisis finally provided the occasion for this. Fearing for their profits and, of course, for losses, investors acted far too recklessly in early 2020 and began to sell shares in February 2020. In the course of the sell-off, more and more stop-loss limits were triggered, so that the downward movement led to a real panic.

A stock market crash is an extreme slump in prices on the stock market, which is triggered by panic-like mass sales and can last from a few days to weeks. A crash often occurs at the end of a speculation bubble, e.g. after the Tulip Mania 1637 or the real estate bubble in 2007.

The question of how far the bear market will still reach in the indices is one that certainly nobody can answer seriously. For an investor, however, two things in particular will pay off: First, to have investment capital ready and second, to know in which shares you will invest.

(1) PayPal: Unique competitive advantage

PayPal (ISIN: US70450Y1038 – Symbol: PYPL – Currency: USD) operates a payment system that is used to process purchases and sales in online commerce. The former eBay subsidiary is the undisputed market leader in online payment and now has over 305 million active member accounts in approximately 200 countries.

If you shop on the Internet more often, you will surely have come across PayPal at one or another time. Similar to credit card companies, PayPal earns a small percentage of every single transaction. And that’s quite a lot, because in the last year 2019 alone, around 12.4 billion payment transactions with a total transaction volume of 712 billion USD were processed.

(2) Facebook

The stock of the social network Facebook (ISIN: US30303M1027 – Symbol: FB – Currency: USD) has experienced an impressive upward trend in recent years, before first some data scandals and then the corona panic put pressure on the stock.

Around five years after Facebook reached one billion users, the number of monthly active users exceeded the magic 2 billion mark in 2017 and is currently around 2.4 billion.

Since Facebook is succeeding in constantly generating more revenue per user, revenues have so far risen much faster than the number of users. And if Mark Zuckerberg has his way, the 2 billion user sound barrier will not be the last milestone for Facebook. Zuckerberg’s declared goal is no less than 5 billion monthly active users by the year 2030.

(3) Waste Management, Inc

The third value presented is considered an anti-cyclical or defensive investment, i.e. a stock that would not be as badly affected by a possible recession as technology stocks.

Specifically, Waste Management (ISIN: US94106L1098 – symbol: WM – currency: USD) is about waste disposal and recycling. Just recently, the World Bank predicted that the global volume of waste will increase by up to +70% to an incredible 3.4 billion tons per year by 2050. Around 8 million tons of plastic end up in the world’s oceans every year. Of course, it is not only plastic waste that poses problems, but also many other materials that are not degradable or only degradable with difficulty. In order to reduce the amount of waste, the recycling rate must be increased in addition to optimizing packaging.

Waste Management is one of the beneficiaries of these developments. The waste management company, founded in 1968, is listed on the New York Stock Exchange and is included in the S&P 500 share index. Its core business is the collection, disposal and recycling of various types of waste. Customers are private households, cities and municipalities as well as industrial customers. The generation of renewable energy from landfill gases is also becoming increasingly important for the innovative company.

Well, first of all, there are no stocks that are guaranteed to perform well in a recession. It depends on the causes of the recession itself, how deep and how lasting the slump is, then a whole range of other factors. However, there are some general guidelines where stocks tend to perform well.

Panicking markets – As a rule, those companies that sell items at reduced prices are not bad off. Among them, of course, are large discounters.

Wal-Mart, for example, actually grew by 18% in 2008, while the S&P 500 plummeted by 39%. Even better was the performance of Dollar Tree, which rose by more than 60 %.

In addition, mature companies with strong competitive advantages such as size and brand strength tend to do better than most, especially if they make everyday products.

Consider companies like Colgate-Palmolive or Johnson & Johnson. And finally, utilities are probably the most recession-proof business there is. They should perform well in difficult economic times.

Finally, it should be noted that equities are generally not too badly off in recessions. Since the mid-1950s, the average stock market yield in recessions has been minus 1.5%. Not good, but certainly not catastrophic either. And the market then tended to perform very well in the years that followed. It is therefore important to note that you do not sell stocks from your portfolio in order to buy recession-proof stocks.

In times of crisis, stocks from defensive sectors are a good choice.
These non-cyclical (defensive) values are less dependent on the economy and therefore less susceptible to a (possible) recession.

If you want to protect your portfolio against the risk of recession, it is worth taking a look at shares in the following sectors.

Classical defensive sector: Healthcare sector

The healthcare sector is one of the classic non-cyclical sectors. The businesses of companies from the pharmaceutical, biotechnology, medical technology and healthcare service provider sectors are little or not at all affected by a possible recession.

In times of economic weakness, people limit their consumption, but not their health. And health insurance companies pay for treatment even in times of crisis.

Food Industry

The food industry also need not worry about sales in times of crisis. After all, people always eat and drink. Shares of market leaders with a wide range of pricing options give your portfolio stability.

Look at the charts of Nestlé or Coca-Cola, for example. Their share prices were almost unaffected by the general sell-off mood. Investors already know what you have in these crisis-proof brand giants.

Utility Stocks

The utilities are also hardly dependent on the economic situation.

Because irrespective of the economic conditions, people will use utility services such as gas, electricity, mobile, etc. Although they would reduce the usage affecting the profitability of the utility companies. Hence utility sector is the best bet during economic crisis.

Telecommunications

The telecommunications industry also offers you security from a recession. One thing is clear: In the coming years, global data traffic will continue to grow. Some companies will benefit more, others less.

The smartphone boom has been providing Apple with extremely high growth rates for years. Even during the 2009 economic crisis, the company was able to increase its iPhone sales considerably.

And the boom of iPhone and iPad or the numerous imitation products is far from over. As a result, suppliers of smartphones and tablet PCs are likely to do strong business in the coming years – regardless of the economic cycle.

In Europe and the USA, the “shutdown” in many regions will lead to dramatic slumps in many sectors of the economy. Monetary easing measures and economic stimulus injections are likely to mitigate only the most severe effects.

The travel, leisure and catering industries will soon face massive problems. However, the interruption of supply chains will also have a severe impact on the manufacturing and automotive industries.