Editor's Pick: Originally Published Tuesday, Dec. 22.
If a recession is coming, you want to make sure you have "recession-proof" stocks in your portfolio before other investors catch wind and drive the prices of these safe-haven equities up.
Recessions are a fact of economic cycles but, historically, interest rate hikes have helped them develop faster. With the Fed raising U.S. interest rates for the first time in nearly 10 years, investors may want to explore stocks of companies that can do well despite a recession.
In particular, focus on companies that are key in events that occur in our lives regardless of the economic backdrop. These so-called life-stage events can include students going to college or, on the other end of the spectrum, an aging population either downsizing or moving to assisted living facilities. It can even be something like young adults moving back home or moving to developing urban areas with smaller space.
In the case of students going to college, there has been a continuing, dependable demand for student housing that is developed and maintained by real estate investment trusts, or REITS. The largest REIT in this space is American Campus Communities (ACC) - Get Report , which owns or manages properties throughout the U.S.
The company recently announced that it is on track for an occupancy rate of 97.7% and rental growth rate of 2.9% for 2015, with more growth coming over the next two years. The company also has a current dividend rate that is annualized at 4%.
Another popular REIT is Education Realty Trust (EDR) . This stock is close to hitting a one-year high in price on the heels of having its corporate credit rating raised by Standard & Poors.
These companies provide beautiful housing for students that can sometimes resemble resort living, so students love them. But they are also attractive to the schools themselves -- particularly state schools which no longer have deep pockets and are more than willing to outsource housing.
Self-storage REITs also can outperform during a recession. Demand for storage rooms, lockers and containers is often the result of life events, like moving or becoming an empty nester. In fact, the sector benefits during recessions because it often forces small businesses to use storage lockers as temporary inventory warehouses during downsizing.
With a $43 billion market cap, Public Storage (PSA) - Get Report is the largest REIT in the self-storage arena, as advanced data analysis has helped the company target new move-ins as well as price its services competitively.
PSA has also expanded operations into Europe and while growth there was strong, the recent rise in the dollar tempered its contribution to a recently reported strong third quarter. The stock's price is continuing to advance since breaking out to a new high in price two months ago.
Extra Space Storage (EXR) - Get Report is another large self-storage REIT that has even stronger fundamentals as it boasts high occupancy rates in its over 800 facilities in 36 states. A recent acquisition ofSmart Space Storage in California for $1.5 billion is expected to boost revenues even more going forward, as several analysts have raised estimates for 2016.
So, despite the possibility of higher interest rates stalling already-modest growth in the U.S. economy, investors need to remember that there are industries and services that are always needed. And if the companies that provide those services have strong management and a solid track record, you'd be wise to take note and consider investing to help recession-proof your portfolio.
For more insights on top performing growth stocks like this, please see my newsletter at MEM Investment Research.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.