In times of economic uncertainty, savvy investors seek strategies to safeguard their portfolios. The market’s volatility, driven by fears of recession, inflation, or global turmoil, makes it essential to focus on recession-proof stocks. These stocks belong to companies that are resilient during downturns, continuing to generate steady revenue even when the broader economy faces challenges. Here’s how you can build a defensive U.S. portfolio with recession-proof stocks, focusing on sectors like consumer staples, utilities, and healthcare.

1. Focus on Consumer Staples

Consumer staples are products that people need regardless of economic conditions, such as food, beverages, household items, and personal care products. Companies in this sector experience consistent demand because, even during recessions, consumers still buy basic necessities.

Key stocks: Think of giants like Procter & Gamble (PG) and Coca-Cola (KO). These companies have a strong global presence, reliable revenue streams, and strong balance sheets. They offer stability through dividend payouts and are less impacted by reduced consumer spending, making them top picks among recession-proof stocks.

2. Look to Utilities for Stability

Utilities are another reliable sector during economic downturns. Regardless of how the economy is performing, people still need electricity, water, and gas. Utility companies enjoy consistent cash flow and are often backed by government regulation, which adds a layer of security. These companies are known for paying dividends, providing a steady income even during recessions.

Key stocks: NextEra Energy (NEE) and Duke Energy (DUK) are examples of utility companies with long histories of stable earnings and dividend growth. Their services are essential, making them excellent recession-proof stocks for a defensive portfolio.

3. Healthcare for Consistent Demand

Healthcare is another recession-resistant sector. Regardless of economic conditions, people will always need medical care, medications, and health services. Healthcare companies often have robust cash flows and solid financials, making them a great defensive play. Moreover, an aging population ensures ongoing demand for healthcare products and services.

Key stocks: Consider Johnson & Johnson (JNJ) and Pfizer (PFE). These companies not only have diversified product lines but also generate significant revenue from essential medicines and healthcare products, making them ideal recession-proof stocks.

4. Prioritize Strong Balance Sheets and Dividends

When building a defensive portfolio, focus on companies with strong balance sheets, manageable debt levels, and a history of stable cash flows. These attributes are crucial during economic downturns, as businesses with high debt levels may struggle when credit markets tighten.

Dividend-paying stocks are also key. Dividends provide a consistent return even when stock prices are volatile, offering a cushion during turbulent times. Many companies in the consumer staples, utilities, and healthcare sectors are known for maintaining or growing their dividends, even in recessions.

Key stocks: PepsiCo (PEP) and AbbVie (ABBV) are excellent examples of companies with strong balance sheets and reliable dividends. Both have long-standing reputations for rewarding shareholders through consistent payouts, making them attractive recession-proof stocks.

Conclusion

In uncertain economic times, constructing a defensive portfolio around recession-proof stocks can protect your investments and provide steady returns. By focusing on sectors like consumer staples, utilities, and healthcare, you can invest in companies that offer essential products and services with reliable cash flows. Prioritize stocks with strong balance sheets and dividend payouts, as they tend to weather economic storms better than others.

Building a portfolio of recession-proof stocks is a proactive strategy that prepares you for whatever the market throws your way, ensuring you can ride out volatility with confidence.