Here are the Club’s 7 ‘safety stocks’ for a volatile economic environment

Consumer-focused companies can be a safety net in tough times because demand for their products persists in both good and bad economic conditions, allowing them to maintain or even grow earnings as other market sectors struggle. That’s why they’re well-represented in Jim Cramer’s Charitable Trust , the portfolio we use for the Investing Club. During Tuesday’s Monthly Meeting for March, Jim ran through what he called the highest quality “safety stocks” in the Trust and stressed their importance. “We are now out of the ‘there’s nothing that can hurt this economy’ mode and into ‘the economy’s about to topple if the Fed doesn’t cut it out’ mode.” He later said, “We have just the stocks for that scenario.” The recent collapse of Silicon Valley Bank and Signature Bank earlier this month has sparked concerns over the health of the U.S. banking system, resulting in a drag on stock prices. The turmoil in the financial sector also added to fears that the U.S. economy could fall into a recession. The big question is whether the Federal Reserve at its May meeting will continue hiking interest rates to rein in inflation or pause. Jim has made the case that a pause (or even a cut) would be appropriate until the true drag of the banking crisis becomes more apparent. Here’s a rundown of the Club’s recession-resistant stocks that Jim recommends. PG YTD mountain YTD peformance Jim called Procter & Gamble (PG) his favorite stock in the portfolio right now. The consumer goods giant is benefitting from falling commodity costs and the dollar dropping since last summer’s two-decade highs. P & G has shown resilience as elevated inflation weighs on consumer budgets. The company has exhibited strong pricing power for its household items that people need to use every day — raising prices without too much of an impact on consumer demand. COST YTD mountain YTD peformance Costco (COST) is one of the best retailers to own in a strained economy. The club warehouse retailer delivered a solid earnings report despite signs of slower sales in its fiscal second quarter . We’re convinced that now is the “seasonably the strongest period to own the stock,” Jim said. Costco’s members-only, volume-based business allows the company to keep prices lower than other retail competitors. Costco’s customer-first mentality allows the Club holding to take market share and deliver reliable earnings even under difficult macro conditions. Other catalysts: a possible special dividend and/or a membership price hike. HUM YTD mountain YTD peformance Humana (HUM) is our managed-care play and we’re holding the stock for its defensive characteristics. The fundamentals of the health insurer are strong due to its durable membership retention and ability to attract new customers. Humana is taking market share from its peers due to its superior Medicare Advantage (MA) offerings. The company reported a strong fourth quarter in early February along with a favorable forward-looking full-year guidance. However, on Tuesday, the stock took a nearly 5% hit after Bloomberg reported that Sen. Elizabeth Warren (D-Mass.) wrote a letter against Medicare insurers. TJX YTD mountain YTD peformance The off-price TJX Companies (TJX) franchise is expected to be a winner in a slower economy even as consumer spending slows. The operator of T.J. Maxx, Marshalls and HomeGoods is expected to be the preferred destination for shoppers seeking bargains on high-quality merchandise. The company owned up to theft problems in its latest quarter , which weighed on the stock at the time. Jim pointed out that TJX isn’t the only retailer with a pilferage problem just the only one willing to admit it. That didn’t stop us from adding to our TJX position when the market fell into oversold territory recently. We believer the stock will bounce back. JNJ YTD mountain YTD peformance Health care leader Johnson & Johnson (JNJ) has been a tough name to own as of late. The company has been dealing with talc lawsuits, which are expected to linger. However, this is not a reason to get rid of the stock, Jim said. Later this year, J & J is splitting into two companies: one focused on its consumer business and the other on its pharmaceutical and medical devices business. While more volatility could lie ahead, we still get paid for holding J & J with the stock’s annual 2.95% dividend yield. EL YTD mountain YTD peformance Estee Lauder (EL) is a name synonymous with the “highest quality in consumer products,” Jim said. “People wear cosmetics and clean skin during good and bad times, which is why I’m still excited about Estee Lauder.” We’re looking forward to the current quarter, which will be the first since China fully reopened after abandoning zero-Covid curbs and the first quarter since global travel truly rebounded. EL has several positives under its belt including a strong business in the U.S., a growth market in China and the broader Asian region, and robust demand for its high-margin skincare business. The stock is trading at a premium, but we’re willing to pay up for quality in this household beauty name. PANW YTD mountain YTD peformance Cybersecurity giant Palo Alto Networks (PANW) is one of our newer holdings, which we started in mid-February . While it has some exposure to the tech sector, the company has “virtually no economic sensitivity,” Jim said. In an unfavorable operating environment, companies are closely monitoring their corporate spending budgets. But we think there will still be room for IT spending on cybersecurity given it’s a high-priority investment to defend against external threats. We also like to see the company’s four consecutive quarters of GAAP profitability (GAAP stands for generally accepted accounting principles), which makes the company eligible for placement in the S & P 500 . Jim called Palo Alto the “gold standard for cybersecurity” for management’s stellar execution and commitment to improving margins. Bottom line Our seven “safety stocks” are well-positioned to weather further economic trouble that may be ahead. As recession fears grow, we strive to own companies that make stuff and do things, have pricing power, and can consistently attract demand during any economic condition. ( Check out Jim’s thoughts on the other 29 stocks in the Club portfolio.) So, we can’t do without consumer and business essentials, which is why Costco, Procter & Gamble, Humana, Johnson & Johnson, and Palo Alto Networks can thrive in any economic climate. Skincare and makeup take priority in the discretionary spending category, making prestige beauty brand Estee Lauder the best to own, especially with its growth exposure to the China economy. Finally, if consumer budgets continue to tighten, shoppers will trade down to cheaply priced, higher-end brands that TJX carries. (Jim Cramer’s Charitable Trust is long PG, COST, HUM, TJX, JNJ, EL, PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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