Recession-Resilient Investment Picks in the Auto Industry

Assessing potential U.S. recession risks, forecasts indicate a near-term probability ranging from 45% to 60%. Recent spikes in these odds primarily stem from heightened trade policy uncertainty and a potential slowdown in global growth, influenced by U.S. tariffs.

Nevertheless, here are two recession-resilient stocks worth considering, surprisingly located within the auto sector.

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Ferrari: Racing Ahead

Ferrari (NYSE: RACE) is renowned for its racing legacy and ultra-luxury vehicles, yet its impressive stock performance remains less recognized.

RACE data by YCharts

As illustrated in the above graphic, Ferrari has outperformed both its industry peers and the S&P 500. The automaker’s positioning makes it remarkably resilient during economic downturns.

First, Ferrari’s clientele consists of high-income consumers, which allows them to continue purchasing despite economic challenges. Additionally, there are extensive waiting lists and strict resale policies, reflecting a dedicated customer base—often purchasing multiple Ferraris.

Furthermore, Ferrari strategically limits its sales volume, ensuring that demand consistently exceeds supply. This practice enhances their pricing power and provides flexibility in the event of a major economic slump.

Despite its limited production, Ferrari maintains substantial profit margins that align more closely with high-end luxury brands than typical automakers. Recent introductions, like the $3.9 million F80 revealed in October, generate excitement; the limited models quickly sold out. Anthony Dick, an auto sector analyst at the private bank ODDO BHF, shared insights with Barron’s, highlighting that while these models may only represent 2% of sales, they could account for up to 20% of profits. Investors may appreciate Ferrari’s pricing strategies and robust margins, but its recession resilience is also a compelling factor.

AutoZone: A DIY Approach

If Ferrari presents an intriguing opportunity, AutoZone (NYSE: AZO) exemplifies even deeper recession resilience. Operating in a countercyclical market, AutoZone sees increased demand for parts when new vehicle sales decline. During recessions, consumers are likely to hold onto their vehicles longer, choosing repairs over replacements, making AutoZone a dependable choice.

Remarkably, AutoZone shows strong stock performance across various market conditions; its consistency can be seen in the graphic below.

AZO data by YCharts

According to Andrew Choi, a portfolio manager at Parnassus Investments, “This is a defensive, resilient distribution business you can buy at a market multiple with the chance for earnings acceleration.” However, he notes that the market doesn’t fully reflect the durability of AutoZone’s growth despite its stock’s impressive performance.

AutoZone has a strong distribution network, with over 7,000 stores across the U.S., Mexico, and Brazil. Each store typically stocks 20,000 to 25,000 SKUs, supported by larger distribution hubs that can carry significantly more inventory.

Notably, AutoZone also rewards shareholders with substantial value through share buybacks. Over the last decade, the company has reduced its outstanding shares by nearly 50%. Furthermore, it remains largely unaffected by tariff uncertainties, as consumers prioritize keeping their vehicles operational.

Conclusion

It’s not a matter of if a recession will occur but when it will arrive. Investing in stocks with robust business models and competitive advantages can enhance investor resilience during downturns. Given these factors, AutoZone and Ferrari should remain on investors’ radars regardless of economic turbulence or tariff implications.

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Daniel Miller holds positions in Ford Motor Company. The Motley Fool has positions in and recommends Tesla and Stellantis. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.