The economy is starting to look dicey, and nervous investors are selling. There were nearly 3,500 exchange-listed stocks in the U.S. hitting 52-week lows last week. Many of the downticks are warranted, but some of these companies have business models built to weather the storm.
Groupon (GRPN -0.67%), Roku (ROKU -3.08%), and The RealReal (REAL -1.18%) are hitting fresh lows, but they all have some recession-proof characteristics that the market seems to be discounting. Let's go over why they could bounce back after the recent sell-off.
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Groupon
Your first thought after seeing Groupon on this list may be to wonder if the flash-sales specialist is still relevant. That's fair. Revenue is declining for the sixth year in a row. Trailing revenue is 76% lower than when we were at peak Groupon in 2014. The local-experiences discounter operator has had a rough few years as it retreats internationally and from the low-margin physical-goods business that helped prop up top-line results. The news is better on the bottom line, where pre-tax profits had their best showing last year since 2012.
This brings us to the recession that many economists see as either already here or on the way. Groupon was in its early years during the last recession, but the financial banking crisis setback helped send the platform's popularity skyrocketing. Consumers want deals when money's tight. Local businesses want leads. Groupon is there to satisfy both needs, taking a healthy chunk of the transaction as the magical middleman. It's getting back to basics, and that couldn't be happening at a better time.
Roku
You may be surprised to see an ad-supported company on this list, but Roku isn't your garden-variety marketer magnet. Roku operates the country's leading operating system for streaming media through your TV, and it's growing. The 63.1 million active accounts it serves is 14% more than the homes it was entertaining a year ago.
There are, however, plenty of reasons to be fearful here. Advertisers tend to pare back on their budgeting when the economy heads south. Roku itself has struggled with supply chain constraints that are hurting its low-margin hardware business. Its guidance for the quarter that just ended was already making bulls jittery by targeting just a 3% year-over-year revenue gain.
But now let's turn to what may happen during a recession. Roku's platform is popular. It will only gain more viewers if corner-cutting folks stay home for the escapism of entertainment. Marketers in general may hold back in a downturn, but Roku's advertisers are largely the streaming video services that want to stand out among the thousands of apps available on the hub. They will need to advertise on the home of the leading streaming video stock to survive the inevitable shakeout. Usage and monetization will keep moving in the right direction.
The RealReal
If you thought an advertiser is an odd fit on a list of recession-proof stocks, check out this flex The RealReal is a seller of brand-name apparel, footwear, handbags, jewelry, and watches. Designer brands? During a time when money is tight? Really?
Well, The RealReal is a way to score bargains on brand-name goods. It's an online consignment shop, but unlike other secondhand shops, it puts its items through a rigorous verification process to determine its authenticity. Buyers know they're getting a good deal on a legit designer brand.
Revenue took a 5% hit in 2020, after increases of 55% and 48% the year before that, but that's understandable. We didn't need brand-name fashion statements when we were hunkering down at home during the early months of the pandemic. We're back in the wild again, and TheRealReal saw its business soar 56% last year -- up another 48% through the first half of the year. Profitability is a concern, but this is a revenue growth story at this stage of its cycle. A recession may hurt its existing customers, but it will also draw full-price shoppers of luxury goods that will be trading down.
Groupon, Roku, and The RealReal naturally hope that the economy stays strong. There's more money to be made that way. However, these are surprising recession-proof stocks that could be compelling buys here after hitting new lows last week.
