Investors who undertake a more macro-based, top-down investing approach normally look for attractive industries in which to deploy their capital. Ideally, an attractive industry is one that displays long-term growth trends and is anti-cyclical (i.e., unaffected by economic cycles). The first and most obvious industry that comes to mind would be food. People have to eat whether the economy is doing well or not, although the amount they spend on food may fluctuate.
Here are two other industries that are considered recession-proof — and that might be worth a look when considering your next investment.
The healthcare industry
Healthcare is usually viewed as being indispensable since people routinely fall ill, encounter accidents, or suffer from diseases. The scope of healthcare is actually very wide, ranging from the companies that operate hospitals and clinics to medical-device manufacturers.
Also present in the sector are pharmaceutical companies that research and develop new drugs and treatments for major illnesses such as schizophrenia, cancer, and diabetes, as well as drug distribution companies that make up an integral part of the medical supply chain.
This industry is recognized as being recession-proof since everyone gets sick occasionally, and many people know a friend or relative who suffers from chronic or critical illnesses or needs long-term care. If anything, the ageing population in many mature economies is a sign that healthcare is needed more than ever. Some reports refer to this as the “silver tsunami” and predict that in 20 to 30 years, even more healthcare facilities will be built as demand for services begins to outstrip current supply.
The education industry
Another industry commonly viewed as recession-proof is the education industry, and this includes private education providers and schools. As the internet is now a ubiquitous part of our lives, there is a wealth of information available for everyone to share and learn from. The importance of education has been emphasized much more in recent times as countries around the world modernize and grow.
Schools and private learning centres are opening up in many parts of the world, and the education industry is booming even as the world’s population continues to grow. Even during a downturn, many parents will not cut back on spending for their child’s education as they see it as an investment in their child’s future rather than an expense.
Be wary of valuations
While these two industries are fairly recession-proof, investors need to be wary of overall valuations when they analyze companies in either sector. As more and more investors understand and appreciate the resilient nature of these industries, they will thus be willing to pay much more for shares in companies that are market leaders in these sectors. Hence, expectations will be high, and so will valuations in general, so investors need to be wary of over-paying for a company and diminishing their margin of safety.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.