Over the past few weeks, oil prices have decreased as geopolitical tensions in the Middle East have eased. While that’s great news, this is still an evolving situation, and we can’t say for sure that we are out of the woods. It is still possible that the economy will enter a recession relatively soon, and if it does, it may drag down broader equities along with it. Investors can prepare for this by buying shares in companies that perform relatively well even during economic downturns. Let’s consider two stocks that fit the bill: CVS Health (NYSE: CVS) and Gilead Sciences (NASDAQ: GILD). Read on to find out why these two healthcare leaders are great picks to prepare a well-diversified portfolio for a recession.
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1. CVS Health
Although it is best known as a pharmacy chain operator, CVS Health has a diversified healthcare business that spans primary care and health insurance, and it is also a leading pharmacy benefits manager. The company’s operations are fairly defensive and can perform relatively well even during recessions. Take CVS’ insurance business. Health insurers tend to experience steady demand even as the economy weakens, since patients continue to seek medical services regardless of economic conditions.
CVS Health also has significant exposure to government-sponsored healthcare plans. While that comes with some risks, one advantage is that government programs can be somewhat resilient during recessions (although they are by no means recession-proof). CVS Health’s other businesses display similar characteristics, making it an attractive stock to buy during recessions.
Meanwhile, despite encountering some headwinds in recent years, CVS Health has bounced back. The company’s financial results have improved as it has found a way to better control rising expenses and shrinking margins within its Medicare Advantage business. Further, the company has attractive long-term prospects, given its diversified healthcare operations, competitive advantages from several sources — including steep barriers to entry in the insurance industry — and the expectation that healthcare spending will increase over the long run as the world’s population ages.
Finally, CVS Health is a solid dividend stock. It offers a forward yield of 2.6%, compared to the S&P 500’s average of 1.1%, and it has increased its payouts by 56.5% over the past decade. CVS Health is an attractive dividend stock to buy for investors worried about a coming recession.
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