As the saying goes, ‘when the US sneezes, the whole world catches a cold’. And lately, there have been a few signs of potential softness from across the pond.
The US jobs report for July showed a sharp slowdown in hiring, while unemployment ticked higher. Meanwhile, inflation has been climbing since April, driven by tariffs pushing up prices and squeezing household budgets.
Despite this, the US looks to be holding up well for now. Second-quarter earnings have mostly exceeded expectations, with 80% of companies beating estimates by early August.
But with uncertainty ahead, if you think progress might stumble, there are steps you can take now to help shield your portfolio.
One way to do that is to focus on companies in resilient sectors – industries providing essential goods and services that people keep buying regardless of economic swings. While no market segment is entirely recession-proof, these areas tend to weather downturns better.
Here are three stocks operating in sectors that have historically weathered recessions well, and that could be smart places to look if tougher times lie ahead.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to future returns and ratios shouldn’t be looked at on their own. Yields are also variable and no income is ever guaranteed.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
AstraZeneca
Healthcare has historically been a resilient sector as people prioritise their well-being, regardless of how the economy is doing.
With the world's ageing population steadily increasing, demand for healthcare services continues to grow as senior citizens seek to maintain a good quality of life into their later years.
On hand to help make that a reality is global pharmaceutical giant AstraZeneca.
AstraZeneca is a UK-based company at the cutting-edge of drug development. The group was in great health at the half-year mark, with both revenue and underlying operating profits rising at double-digit rates.
There are lofty ambitions to grow revenue from $54.1bn in 2024 to $80bn by 2030.
We think that’s achievable, but it won’t be without some challenges.
Progress so far has been good, and there’s a strong pipeline of potential new products – an area where Astra’s hit rate in the clinic has been impressive.
The group has already had a string of regulatory approvals for cancer therapies so far in 2025.
After approval, sales of cancer drugs can build incrementally for many years as patient access improves, approvals are gained in new markets, and clinical trials prove their efficacy in additional diseases. The high-value nature of the group’s products has also improved profitability and there’s scope for more to come.
Despite the strong track-record, Astra still has to contend with the substantial risks that come with drug discovery. Even after heavy investment, plenty of drugs never make it to market, so investors need to be prepared for disappointments.
The balance sheet is in good shape, and the group’s generating strong cash flows from its existing portfolio of medicines. That’s helping to support a forward dividend yield of 2.3%.
The valuation’s sitting below the long-run average, reflecting concerns around tariffs. We’re not overly concerned about the potential for damage from tariffs, given the essential nature of its products. If Astra can continue executing its strategy well, then the future looks bright. But there are no guarantees, and potential investors need to have some tolerance for disappointments.
BAE Systems
The defence industry is an area that tends to be resilient to economic cycles, given that its customers are largely governments.
Demand for their products has risen recently due to elevated geopolitical tensions. We expect that trend to continue, with NATO allies recently agreeing to increase their defence budgets from 2% to 5% of GDP over the next decade.
As the UK’s largest defence contractor, BAE Systems looks well-positioned to capture some of this extra spending. The group manufactures heavy-duty military equipment like fighter jets, land combat vehicles and submarines.
The group’s first-half results were strong, with all divisions in growth territory. That gave management the confidence to nudge its full-year guidance higher, with sales and underlying operating profits now expected to grow by 8-10% and 9-11% respectively.
With the order book standing at a mammoth £75.4bn, just shy of record levels, BAE has plenty of work lined up for the years ahead.
These are typically long-cycle orders, with revenues spread over several years, giving the group great revenue visibility. That’s an enviable asset to have if the wider economy begins to stall.
But keep in mind that profitability hinges on its ability to estimate future costs. The long-term nature of many contracts means that the related risks and costs can change over time.
Currently, potential supply chain issues and production delays have been called out by management as the main trip hazards.
Despite taking on more debt to fund the acquisition of Ball Aerospace last year, the balance sheet remains in good shape. There’s plenty of free cash flow pumping around the business, supporting the 2.2% forward dividend yield.
BAE Systems remains one of our preferred names in the sector given its diverse revenue streams and track record of strong execution. But that’s seen the valuation rise above the long-run average, increasing the risk of any missteps being punished by the market.
Unilever
No matter what shape the economy is in, consumers will always need the essentials. Household goods like bleach, deodorant, and washing-up liquid never go out of vogue.
On hand to provide a wide variety of these must-haves is consumer staples giant Unilever.
Unilever is in the midst of a significant transformation. That saw an unexpected change of leadership earlier this year, with the new CEO Fernando Fernandez, given the task of dragging the group out of its slow growth holding pattern.
With that in mind, plans to spin off its Ice Cream division are on track, with a separate listing pencilled in for mid-November. Alongside substantial cost cuts, this should free up time and resources to concentrate on other areas of its portfolio.
Unilever’s collection of 30 so-called ‘Power Brands’ are its beating heart. These include names like Dove, Domestos, and Hellmann’s, making up over 75% of total sales.
Brand and marketing investment into these names is at its highest level in a decade and now stands at 15.5% of revenue – we expect the group to keep investing in these power brands.
This is a clear sign of confidence in its ability to deliver strong results over time. While it’s too soon to make a call on whether it’s been a success, early signs have been positive, driving growth across all business units.
The 3.7% forward dividend yield is a key attraction, supported by strong free cash flows and a robust balance sheet. We don’t see too much upsetting the apple cart here, but as ever, nothing is guaranteed.
The impact of tariffs on consumer sentiment and purchasing is something to remain wary of. However, we believe Unilever’s strong brands and ability to pass on higher costs to customers should stand it in good stead.
Unilever is a quality business showing clear signs of progress. If it can deliver planned cost cuts and spin-off its Ice-Cream division, without causing too much damage, then consistent mid-single-digit sales growth is on the cards. The valuation isn’t too demanding, but there’s plenty of execution risk ahead.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
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