I am an investor who is concerned about the economy. Here’s why I just bought these 2 stocks on the decline anyway.

Last week, I put new money to work by investing in stocks. And I’m sure critics would call me naive for investing in a moment like this. But I don’t consider myself naive. On the contrary, if I’m being 100% transparent, I’m worried about the US economy.

For starters, the US national debt recently topped $35 trillion. I don’t know where the breaking point is. But the national debt certainly seems to be growing at an unsustainable rate, bringing it closer and closer to wherever that tipping point is.

I often hear people complain about how politicians created this problem by failing to balance the budget. But the average US household isn’t much better off. Household debt is now at an all-time high of $17.8 trillion, which includes a record $1.1 trillion in credit card debt.

US credit card debt; data by YCharts.

Some advocates of the economy will point to “resilient” consumer spending. But is spending really sustainable if debt is skyrocketing? It seems that at some point, maybe soon, the credit will run out. And with cash already largely depleted, consumers will be left without much liquidity.

In short, I wouldn’t be surprised if out-of-control government spending eventually required some tough decisions to set the economy back. And unchecked household spending could soon lead to a collapse in discretionary spending. These are just a few things that really worry me about the economy.

Why do I invest anyway?

I’m worried about the economy, but here’s why I’m an investor anyway: I’ve been worried about the economy for years, but it’s adjusting in unexpected ways. And that usually means it continues to shoot, and the stock continues to hit new highs.

What’s more, the stock market rises most years, which is another incentive to have money invested sooner rather than later.

Instead of allowing fear to sideline me, I choose to address my fears through the investment decisions I make. In other words, I think an economic recession is possibly just around the corner. Therefore, I only want to be invested in undervalued businesses that are in a position of long-term financial strength.

And in my view, beverage company Celsius (CELCH 0.53%) and discount retailer Five below (FIVE 2.51%) there are two businesses that fit this description.

1. Celsius

In the second quarter of 2024, Celsius had cash and equivalents of more than $900 million and zero debt. Of course, there’s more to investing than just finding a business with a solid balance sheet. But in tougher economic times, a strong balance sheet is an asset, and it’s one of the reasons I’m comfortable buying Celsius stock right now.

As with balance sheets, there is more to investing than finding a stock that trades at a cheap multiple. But all else being equal, it’s good when a stock is cheap, and I think Celsius stock is.

A good comparison is Monster Drink stock. As the chart below shows, Monster stock has traded at an average price-to-sales (P/S) ratio of 9 over the past 10 years, with the valuation rarely straying far from that average. Therefore, the market will appreciate a quality beverage business at this price. And as the chart below shows, Celsius shares are about 30% cheaper than that, which I think is attractive.

CELH PS Report; data by YCharts.

Thinking big picture, I like Celsius as an investment because it is growing and its margins are improving. In recent years, Celsius has skyrocketed from obscurity to become the #3 energy drink brand, behind only Red Bull and Monster.

The intriguing thing here is that Red Bull and Monster have a large presence in international markets, while Celsius is just getting started. Growth could continue for several years only through international expansion.

Moreover, Celsius has a chance to improve its profit margins. In recent years, growth has been so rapid that management has had no time to optimize operations. But now that things have slowed down (second-quarter revenue was up another 23%), it can make changes that improve profits. For perspective, net profit rose 70% in the first half of 2024 compared to the same period in 2023.

For these reasons and more, I like Celsius stocks for the long haul.

2. Five below

Like Celsius, I also like Five Below stock for the long haul. It also has no debt other than leases. And it’s well capitalized, with more than $350 million in cash, equivalents and short-term investments. Moreover, at a P/S of 1, the stock has never been this cheap in its 12-year public history.

Five Below is down more than 60% since the start of 2024. Investors rushed for the exits after an abrupt departure of the CEO and after it missed expectations for the first quarter of 2024. But I think they are grossly overreacting.

For 2024, Five Below expects same-store sales to decline 3% to 5% — that’s suboptimal, and management is likely to lower those expectations further when it reports second-quarter financial results on the 28th August. But even with this drop in growth, the company expects a full-year net profit of nearly $300 million.

Five Below stores are relatively cheap to open and have a quick payback period of about a year. In the coming years, management expects to open more than 1,000 new locations. And given the economics of the unit, this should increase both revenues and profits by considerable amounts.

Sales may slow in the short term, but I fully expect Five Below’s profits to increase in the long term. And that’s why I’m happy to add shares of this well-capitalized retailer to my portfolio right now.

In closing, the economy could be in trouble in the coming months and years. And if that happens, there will be a lot of businesses that are struggling. But Celsius and Five Below are financially positioned to weather uncertain times and reward shareholders in the long term. And that’s why I recently invested in this duo despite my doubts about macroeconomic conditions.