3 Stocks That Can Thrive Through Recession

Federal Reserve Policy - The Federal Reserve is expected to start cutting interest rates in September, shifting the focus from whether to how quickly and deeply the cuts will occur [1] - Historically, the Fed has cut rates quickly, often faster and steeper than market expectations, suggesting a potential for substantial cuts within the next year [1] Economic Implications - Rapid interest rate cuts by the Fed could indicate worsening economic conditions, particularly if unemployment continues to rise [2] - A quick rate cut could lead to a struggling stock market, with potential sell-offs exceeding 30% for major indexes, similar to past economic downturns [3] Investment Strategies - Investors face a dilemma regarding whether to sell off assets or to seek out relatively cheap investments, as a recession may be imminent [4] - The performance of large-cap growth stocks during past recessions has varied, with significant declines observed during the Dot-Com bust and the Great Financial Crisis [4] Valuation Considerations - Large-cap stocks currently trade at higher price/earnings ratios compared to historical averages, while small-cap and mid-cap stocks are trading below average [5] - Growth and value stocks are trading at similar P/E ratios as before the 2001 recession, indicating potential risks for growth stocks if a recession occurs [5][6] Historical Context - Historical patterns suggest that expensive stocks relative to their own histories are likely to experience the most significant declines during recessions [6] - Companies that performed well during the 2001 recession are being targeted for investment, particularly those with low valuations today [6] Specific Company Insights - Realty Income (O) has shown resilience during past downturns, with a strong business model and a history of dividend growth, although it currently trades at a higher valuation than in 2000 [7][10] - EPR Properties (EPR) has navigated challenges during the pandemic without increasing debt, positioning itself for potential growth as interest rates decline [14] - Annaly Capital (NLY) is viewed as a strong investment during recessions due to its focus on agency mortgage-backed securities, which perform well in market downturns [16][17] Conclusion - The combination of O, EPR, and NLY is expected to outperform during potential recessions, with NLY particularly positioned to thrive regardless of economic conditions [18][20] - Investors are encouraged to focus on low valuations for better long-term returns, adhering to the principle of buying low and selling high [20]