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 time like this. But I don’t consider myself naive. On the contrary, if I am 100% transparent, I am worried about the US economy.

For starters, the U.S. national debt recently surpassed $35 trillion. I don’t know where the break point is. But the national debt really seems to be rising at an unsustainable rate, bringing it ever 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 American household isn’t much better. 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 of YCharts.

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

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

Why I invest anyway

I’m worried about the economy, but that’s why I’m an investor anyway: I’ve been worried about the economy for years, but it’s adjusting in unexpected ways. And this usually means it keeps on chugging along, and stocks keep making new highs.

More than this, the stock market goes up most yearswhich is another incentive to have money invested sooner rather than later.

Instead of allowing fear to override me, I choose to address my fears with 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 companies that are in a position of financial strength for the long term.

And in my opinion, beverage companies Celsius (CELH 0.53%) and discount retailers Five below (FIVE 2.51%) are two companies that fit this description.

1. Celsius

As of the second quarter of 2024, Celsius had cash and equivalents of over $900 million and zero debt. Of course, there is more to investing than finding a company with a strong balance sheet. But in tougher economic times, a strong balance sheet is an asset, and that’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 the Celsius stock is.

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

CELH PS ratio; data of YCharts.

Thinking bigger, I like Celsius as an investment because it is growing and its margins are improving. In recent years, Celsius has soared out of obscurity into the No. 3 spot for energy drinks, behind only Red Bull and Monster.

The exciting thing here is that Red Bull and Monster have a large presence in international markets, while Celsius has barely started. Growth can continue for several years on international expansion alone.

In addition, Celsius has a chance to improve its profit margins. In recent years, growth has been so fast that management has not had time to optimize operations. But now that things have slowed (second-quarter revenue was still up a strong 23%), it could make adjustments that improve profits. For perspective, net profits increased by 70% in the first half of 2024 compared to the same period in 2023.

For these reasons and more, I like Celsius stock for the long term.

2. Five below

Like Celsius, I also like Five Below stock for the long term. It’s also debt-free, except for leases. And it’s well capitalized with over $350 million in cash, equivalents and short-term investments. Also, 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% from the start of 2024. Investors rushed the exits after an abrupt CEO departure and after it missed expectations for the first quarter of 2024. But I think they are overreacting in the extreme.

For 2024, Five Below expects sales in the same store to fall 3% to 5% — that’s suboptimal, and it’s possible management will lower those expectations further when it reports second-quarter financial results on Aug. 28. But even with this slowdown 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 revenue and profits significantly.

Sales may slow in the short term, but I fully expect Five Below’s profits to soar 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 conclusion, the economy may struggle in the coming months and years. And if that happens, there will be plenty of companies struggling. But Celsius and Five Below are financially positioned to push through uncertain times and reward shareholders over the long term. And that’s why I recently invested in this duo despite my concerns about macroeconomic conditions.