2 Recession-Proof Stocks for the Next Bear Market

The next recession may already be on the way. If you want to protect your portfolio without giving up long-term potential, take a look at Constellation Software Inc. (TSX:CSU) and one other proven stock.

| More on:

The next bear market is coming—at least that’s what a growing number of economists are saying. Whether it’s sluggish growth in Europe, rising consumer debt in Canada, or escalating trade wars between China and the U.S., dozens of respected hedge fund managers and financial gurus have become skeptical about the global economy.

If you’re worried about the value of your investments, there has never been a better time to position your portfolio for the next crash. But don’t worry—that doesn’t mean selling all of your stocks.

In fact, many stocks actually benefit from a recession. If you want to protect your savings without sacrificing long-term growth, here are your two best options.

Automation is here

Automation isn’t coming—it’s already here. Automating any business process, from manufacturing to inventory management, is the fastest and most reliable way for a company to eliminate one of its biggest costs: labour.

While that’s bad news to the workers, it’s good news if you’re looking for recession-proof stocks. That’s because whether it’s a bull or a bear market, companies are always looking to cut costs and increase profitability. Investing in firms that provide automation software is a win-win scenario, no matter the economic environment.

Your best bet here is Constellation Software Inc. (TSX:CSU), a classic millionaire-maker stock. Since 2006, investors have increased the value of their holdings by 73-fold!

A $10,000 investment became $730,000 in just 13 years. Notably, the company completely side-stepped the financial crisis of 2008.

When stock markets were falling by 50% or more, Constellation stock actually increased in value. That’s because when profits are falling, customers are even more likely to buy Constellation’s automation software.

Constellation’s automation software has another benefit: it’s often custom-designed for the client. While that increases upfront costs, it makes it nearly impossible to switch to a competitor.

This gives Constellation an incredibly durable revenue stream that experiences very little churn—yet another benefit if a recession hits. This stock is expensive, but it’s a great place to hide during the next downturn.

Trust the guru

Constellation stock is expensive, but there’s another option that’s surprisingly cheap: Fairfax Financial Holdings Ltd (TSX:FFH). Fairfax is headed by Prem Watsa, one of the more respected investors of the last few decades.

Since the 1980s, he’s compounded shareholder value by more than 17% per year. Investors that have stuck with him have made a boatload of money.

As is the case with Constellation, Fairfax shareholders completely side-stepped the financial crisis. There was a bit of a dip during certain months, but overall, investors actually ended up with a profit. That’s an incredible result given that many people lost their life savings during the downturn.

The outperformance is partially due to Watsa’s investing acumen, but Fairfax’s business model is also to thank. The firm owns a litany of insurance companies that provides Watsa with new cash to invest every day. When markets fall, Watsa has the ability to consistently buy at lower prices, a huge advantage.

There’s no guarantee that Fairfax or Constellation will make it through the next recession unscathed, but given their proven histories of success, it’s a good bet to make.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Ryan Vanzo has no position in any stocks mentioned. Fairfax Financial is a recommendation of Stock Advisor Canada.

More on Tech Stocks

Hourglass and stock price chart
Tech Stocks

1 Canadian Stock Ready to Surge Into 2025

There is a lot of uncertainty about the market in general as we move closer to the following year, but…

Read more »

stock research, analyze data
Tech Stocks

Apple vs. Shopify: Which Stock Is the Better Buy for the Next 3 Years?

Apple (NASDAQ:AAPL) and Shopify (TSX:SHOP) are great tech titans, but they're ending the year with huge momentum.

Read more »

Investor reading the newspaper
Dividend Stocks

Emerging Investment Trends to Watch for in 2025

Canadians must watch out for and be guided by emerging investment trends to ensure financial success in 2025.

Read more »

nvidia headquarters with grey nvidia sign in front with nvidia logo
Tech Stocks

If You’d Invested $100/Month in Nvidia Starting a Decade Ago, Here’s How Much You’d Have Now

Nvidia has helped long-term investors create generational wealth. But is the tech stock still a good buy right now?

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Is Shopify Stock a Buy, Sell, or Hold for 2025?

Shopify (TSX:SHOP) still looks like a tempting growth stock going into a new year with strength.

Read more »

A shopper makes purchases from an online store.
Tech Stocks

The Smartest Growth Stock to Buy With $1,000 Right Now

Given its solid sales growth, improved profitability, and healthy growth prospects, Shopify would be an excellent buy.

Read more »

Representation of deep learning neural networks and connectivity
Tech Stocks

Opinion: This AI Stock Has a Chance to Turn $1,000 Into $10,000 in 5 Years

If you’re looking for an undervalued Canadian AI stock with huge upside potential, BlackBerry (TSX:BB) should certainly be on your…

Read more »

chip with the letters "AI" on it
Dividend Stocks

The Top Canadian AI Stocks to Buy for 2025

AI stocks are certainly strong companies, and there are steady gainers in Canada as well. But these three are the…

Read more »