Bargains, basics, and brake pads: 3 stocks for tough times

This might seem obvious, but it’s still worth stating.

The best retail real estate doesn’t just offer a convenient address. It serves a need that keeps bringing customers through its door no matter the economic environment.

And since the economic environment we’re dealing with is what it is, let’s zero in on the “obvious.”

I’ll be honest. I’m increasingly concerned we’re headed toward a recession as gas pump prices keep rising. As of September 29, AAA reported the national average at $4.46 for regular and $6.44 for diesel.

The former leaves less room for individuals to purchase discretionary items. The latter makes delivery costs more expensive… which affects shelf prices… which affects consumers even more.

The University of Michigan’s September survey showed consumer sentiment falling from 51.7 in August to 48.1. And The Conference Board’s consumer-confidence index fell for a third straight month to 81.9.

When will these pressures ease? We just don’t know.

The International Energy Agency’s (IEA) September oil report cut its 2026 world oil supply projection by 1.3 million barrels per day down to 100.7 million. It also estimated that a full Middle East supply recovery won’t happen until 2027.

Meanwhile, inflation continues to run hot. And if the Federal Reserve responds with another rate increase this month, borrowing will get more expensive still.

I’ve been wrong before in predicting a recession, admittedly. This decade has thrown us for more than a few economic loops so far.

The August unemployment rate was still just 4.1%. And the Atlanta Fed’s recent GDPNow estimate points to strong third-quarter growth.

However if this slowdown does deepen, I’ve got three recession-ready picks to talk about:

Each one comes with a quarterly caveat, it’s true. But they all offer a different way to serve cash-strapped customers nonetheless.

Dollar General is my most obvious choice.

Its 21,000+ stores offer food, cleaning products, health items, and other necessities – all within easy driving distance from where most people live. That proximity matters not just for convenience but also when factoring in gas prices.

Dollar General’s latest quarter showed that revenue rose 5.2% to $11.3 billion. Diluted earnings per share (EPS) climbed from $1.86 to $2.48. And management raised its full-year earnings outlook to $7.80–$8.00 per share.

Comparable-store sales also rose, gaining 3.5%, with customer traffic accounting for two percentage points of that increase. This was its fifth straight quarter of traffic growth.

Now, tariff refunds in the quarter after reinvestment did add an estimated $0.25 per share and 66 basis points (bps) to the operating margin. Even taking that out, however, Dollar General still had roughly $2.23 per share, by my calculation – about 20% above its Q2-25 figure.

That evaluation gives me more confidence in its operating trend than just the headline beat alone.

DG is trading at around $122 a share, which is roughly 16x the midpoint of full-year guidance. (And, yes, that’s after removing the disclosed $0.25 refund benefit.) As such, I’m rating this discount retailer a Buy.

I’ll be busy watching whether traffic and margins continue to improve from here. But if I had to only choose one of today’s three companies to purchase?

It would be Dollar General without a doubt.

Ollie’s offers a different appeal than Dollar General, but it’s still an interesting portfolio pick to consider. For those who don’t know the goofy-faced store fronts, Ollie’s buys brand-name closeouts and excess inventory.

Then it sells them at lower prices that appeal to budget-conscious consumers.

Now, its business modus operandi can be a double-edged sword. On the one hand, Ollie’s tends to get more merchandise opportunities when retailers and manufacturers misjudge demand before or during a slowdown.

On the other, there’s no guarantee customers will spend more anywhere under those economic conditions, even for less. Just because something is cheaper doesn’t mean it’s necessary.

Ollie’s Q2 results show both sides of this reality. The good news is that the company grew its store count 11.9% to 686 locations – with another 75 store openings planned for this fiscal year – allowing revenue to grow 9.1%.

There’s also the fact that Ollie’s Army loyalty membership reached 18.1 million. And it holds approximately $507 million in cash and investments.

However, comparable-store sales fell 1.8%, as customers purchased less per visit. So Ollie’s cut its full-year comp outlook from about 2% growth to 0%–0.5%.

Complicating the picture further, adjusted EPS rose 43% to $1.42. But tariff refunds added 380 bps to gross margin – more than the 360-bps increase in total reported gross-margins.

As a result, I can’t classify that entire earnings jump as a new run rate.

Shares of Ollie’s were trading at about $86 when I checked last. That’s nearly 19x management’s $4.57–$4.65 EPS guidance for the full year, including refund effects and planned price reinvestment.

Its balance sheet and store runway interest me, and I’m keeping an eye out for any rebound in established-store sales. I consider OLLI a Speculative Buy, all things considered, and only for patient investors who want to take a smaller position.

When purchasing a new car is too expensive, there are only so many options to fall back on:

AutoZone runs on the assumption that a large majority of vehicle owners will opt for the fourth choice. Because, no offense to friends and family, that’s just not the greatest option to fall back on.

For so many reasons.

But AutoZone doesn’t just save personal relationships. It also serves professional repair shops, which broadens its demand further and gives it more revenue sources.

Pretty consistent ones, too.

The company’s fiscal fourth quarter produced 5.6% sales growth, and EPS grew from $48.71 to $56.05 year over year. And while domestic comparable-store sales only rose 1.6%, domestic commercial sales grew 8.6%.

That professional part of its business is an important piece of my thesis.

As with Dollar General and Ollie’s, I do have to strip away the easy part of AutoZone’s quarterly accomplishments. Gross margin rose 182 bps, but tariff refunds contributed 145 of that.

Separately, a noncash inventory-accounting effect contributed 105 bps. And I’ll also point out how operating profit grew a more modest 3.1%.

At roughly $2,820 as of Thursday’s close, AutoZone trades at about 18.5x times fiscal 2026 reported EPS of $152.55. That valuation supports my Buy rating for long-term investors – with one caveat.

Reported earnings benefited from tariff refunds and inventory-accounting effects. So I’m watching the underlying operating performance closely.

The company’s next quarter must prove that its underlying sales and margin trend can stand strong after the temporary benefits fade. This is particularly true since it pays no dividend, making AutoZone a resilience and compounding choice rather than an income pick.

Investors need to understand that “recession ready” doesn’t mean “recession proof.” There’s always risk involved in any investment choice.

And as I demonstrated, these three companies are no exception to that hard-and-fast rule.

In this case, squeezed customers tend to turn to cheaper goods. But they also buy less of those goods.

So pay careful attention to Dollar General’s traffic, Ollie’s baskets, and AutoZone’s underlying margins if you pursue them from here.

I already said that Dollar General is my highest conviction pick with its clear current evidence of repeat business. AutoZone comes next, and Ollie’s is in third with its comparable sales puzzle yet intriguing expansion runway and steady balance sheet.

I always want to see businesses that can compound profits even after one-time benefits. And that becomes especially important if we’re headed into a recession.

Hopefully, we’re not. But better to be prepared.

Happy SWAN investing,

Brad Thomas
Editor, Wide Moat Daily