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2 of the Safest Stocks to Buy in a Recession

Motley Fool - Thu Jun 30, 4:41AM CDT

What's next for the U.S. economy? It's hard to even wager a guess. Soaring oil prices caused by Russia's invasion of Ukraine at the tail end of a global pandemic present an especially unpredictable economic environment.

In uncertain times like these, it helps to own stocks that you can rely on to produce strong cash flows. With products many of us can't live without, these two giants of the healthcare sector have a proven ability to withstand economic downturns. Here's why they're still some of the most recession-proof stocks you can buy now.

1. AbbVie

Shares of AbbVie(NYSE: ABBV) are up by about 13% this year, which is a lot better than the benchmark S&P 500 index, which has lost 20% over the same period. With lots of high-margin revenue from top-selling drugs, there's a good chance that AbbVie stock will remain a safe haven even if the U.S. economy plunges into a deep recession.

The top-selling drug for AbbVie is Humira. Last year, U.S. sales of this anti-inflammatory injection for the treatment of rheumatoid arthritis and psoriasis reached a whopping $17.3 billion.

At least six biosimilar versions of Humira have already been approved by the FDA, and they will begin heavily pressuring U.S. Humira sales in 2023. This isn't going to stop AbbVie from growing, though. In years past, the company plowed Humira profits into the development of new drugs that will offset losses to incoming competition.

This is a great stock to buy and hold now because its post-Humira exclusivity strategy is working. First-quarter sales of Skyrizi, a new psoriasis drug, soared 64% year over year to $940 million. Sales of Rinvoq, a new arthritis drug, rose 54% year over year to $465 million. AbbVie's largest Humira-offsetting investment, Botox, is also well positioned to drive growth indefinitely.

Right now, you can pick up shares of AbbVie for just 10.9 times the company's earnings forecast for 2022. A relatively low multiple limits your downside risk, and so does a dividend that currently offers a 3.7% yield. With Rinvoq, Skyrizi, and Botox to drive earnings growth, investors can look forward to years of dividend raises ahead.

2. Abbott Laboratories

AbbVie spun off from Abbott Laboratories(NYSE: ABT) in 2013 as a way to shield the parent company from the incoming competition for Humira. If you're looking for a reliable dividend, you'll be hard pressed to beat this healthcare stock. Abbott Laboratories recently declared its 394th consecutive quarterly dividend, and it's been 50 years since the company went more than a year without raising the payout at least once. At recent prices, the shares offer a 1.8% yield.

Abbott Laboratories is a healthcare conglomerate, and diagnostics is its largest operating segment. In early 2020, Abbott Laboratories rapidly developed some COVID-19 tests that still command a leading share of the market. In the first quarter, the company reported a whopping $3.3 billion in global COVID-19 testing-related sales.

Abbott expects COVID test sales to decline in the second half of 2022, but that won't stop this diversified conglomerate's bottom line from expanding. One of Abbott's largest growth drivers in the years ahead will be its continuous glucose monitoring device, the Freestyle Libre 3. The FDA cleared it for use in May, so we could see it contribute significantly to total revenue in the second half of 2022.

Abbott's stock price has fallen around 24% this year, and at the moment, you can scoop up shares for just 22.8 times the company's earnings expectation for 2022. The average stock in the S&P 500 index trades at around 20.4 times trailing earnings, and Abbott is growing much faster than average. Despite declining COVID test revenue, first-quarter sales grew 17.5% year over year once adjusted to account for a stronger dollar.

People put off buying cars, clothes, and vacation homes during a recession, but blood glucose monitors are a must-have, regardless of your financial situation. So it's not hard to imagine Abbott's diversified healthcare business growing at a double-digit percentage all the way through a possible recession.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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