In this article, we discuss 10 stocks smart investors buy during recessions. If you want to read about some stocks that investors buy during recessions, go directly to 5 Stocks Smart Investors Buy During Recessions.
The stock market is in turmoil as inflation rises and it becomes harder to borrow money due to the prospect of the central bank upping interest rates to keep things from unraveling further. In mid-May, Lloyd Blankfein, the CEO of investment bank Goldman Sachs, said that there was a “high risk” factor of a recession and advised consumers to prepare themselves for an upcoming crisis. However, he also cautioned that the Federal Reserve had powerful tools to deal with the situation and a recession was “not baked in the cake”.
A recent survey by news publication Bloomberg revealed that top economists in the country put the chance of a recession in the US in the coming months at around 30%, up from around 15% only three months ago. There are some economists who believe that although the economy can withstand pressures this year, it might become harder to battle rising rates in 2023 and 2024. Gus Faucher, the chief economist at financial services company PNC, has rated the chances of a recession in 2022 as “pretty low”.
On May 19, the benchmark S&P 500 Index dropped by over 20% year-to-date, the traditional threshold at which the economy is considered to be in decline. Smart investors, who have experience dealing with the developing situation in a market where the panicked sell-off has reduced the share prices of firms with solid fundamentals like NVIDIA Corporation (NASDAQ:NVDA), The Home Depot, Inc. (NYSE:HD), and Verizon Communications Inc. (NYSE:VZ), are already preparing to buy the dip to reap the rewards later.
Our Methodology
The stocks that smart investors have picked up during recession periods were selected for the list. The business fundamentals and analyst ratings of these firms are also discussed to provide further context. Hedge fund sentiment was included as a classifier as well. Data from around 900 elite hedge funds tracked by Insider Monkey in the first quarter of 2022 was used to quantify the hedge fund sentiment around each stock.
Stocks Smart Investors Buy During Recessions
10. DTE Energy Company (NYSE:DTE)
Number of Hedge Fund Holders: 28
DTE Energy Company (NYSE:DTE) is a multi-utilities firm. The company posted earnings for the first quarter of 2022 on April 28, reporting earnings per share of $2.31, beating estimates by $0.23. In guidance numbers for 2022, the company said that it expected earnings per share over the year to be in the $5.80 – $6.00 range. Consensus estimates had guided this number to be around $5.93. The stock has soared in the past few weeks amid rising utility prices due to climbing energy costs.
On May 23, Credit Suisse analyst Nicholas Campanella upgraded DTE Energy Company (NYSE:DTE) stock to Overweight from Neutral and lowered the price target to $140 from $142, noting that the firm was well-positioned to take advantage of inflation and decarbonization trends in the utility landscape over the next year.
At the end of the first quarter of 2022, 28 hedge funds in the database of Insider Monkey held stakes worth $482 million in DTE Energy Company (NYSE:DTE), up from 27 in the preceding quarter worth $778 million.
Just like NVIDIA Corporation (NASDAQ:NVDA), The Home Depot, Inc. (NYSE:HD), and Verizon Communications Inc. (NYSE:VZ), DTE Energy Company (NYSE:DTE) is one of the stocks that hedge funds are buying as economic growth slows.
9. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 50
Target Corporation (NYSE:TGT) is a general merchandise retailer. Despite disappointing earnings, the firm remains well positioned to consolidate retail and boost margins through operational efficiencies and in-house brands. It is also one of the most reliable dividend players with 54 years of growing payouts each year under its belt. The company owns and runs nearly 2,000 stores, making it one of the largest retailers in the United States.
On May 23, Credit Suisse analyst Robert Moskow maintained an Outperform rating on Target Corporation (NYSE:TGT) stock and lowered the price target to $180 from $286, noting that the firm expected inventory-related margin headwinds to abate in the coming months.
Among the hedge funds being tracked by Insider Monkey, Boston-based Arrowstreet Capital is a leading shareholder in Target Corporation (NYSE:TGT), with 2.5 million shares worth more than $530 million.
In its Q2 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and Target Corporation (NYSE:TGT) was one of them. Here is what the fund said:
“We added Target Corporation (NYSE:TGT) to our consumer staples sector. Target Corporation (NYSE:TGT) offers a broad array of products in owned and known brand items at affordable prices. Its omni-channel fulfillment centers allow customers to receive their items via in-store pickup, curbside pickup, same-day shipping and regular shipping while simultaneously reducing operating costs. With a significantly lower valuation than peers and a unique operating strategy, Target Corporation (NYSE:TGT) is an attractive holding.”
8. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 50
United Parcel Service, Inc. (NYSE:UPS) provides letter and package delivery services. In late April, the firm posted earnings for the first quarter of 2022, reporting earnings per share of $3.05, beating estimates by $0.16. The revenue over the period was $24.4 billion, up more than 6% compared to the revenue over the same period last year and beating analysts’ expectations by $600 million. The firm also announced that it would be doubling plans to buy back shares to around $2 billion for 2022.
On April 27, Raymond James analyst Patrick Tyler Brown maintained a Strong Buy rating on United Parcel Service, Inc. (NYSE:UPS) stock but lowered the price target to $250 from $275, noting that a shift toward e-commerce and a solid pricing landscape were growth catalysts for the stock.
Among the hedge funds being tracked by Insider Monkey, Chicago-based Citadel Investment Group is a leading shareholder in United Parcel Service, Inc. (NYSE:UPS), with 1.6 million shares worth more than $353 million.
In its Q4 2021 investor letter, Saturna Capital, an asset management firm, highlighted a few stocks and United Parcel Service, Inc. (NYSE:UPS) was one of them. Here is what the fund said:
“Given the likelihood of rising inflation and interest rates ahead, we anticipate adjustments to the portfolio to reduce exposure to highly valued stocks dependent on low interest rates to support terminal year valuations, while seeking investments in companies more correlated with a return to economic normalcy. Despite the share price decline, it remains expensive with modest growth. We sold our position in United Parcel. The United Parcel Service, Inc. (NYSE:UPS) sale was premature, and we may re-engage given an opportunity.”
7. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 50
Colgate-Palmolive Company (NYSE:CL) makes and sells consumer products. The company is one of the most well-known consumer product brands across the world. Although it has not created as much shareholder value in the past few years as some peers, the firm has more than made up for this shortcoming through reliable dividend payouts that always come through in times of crisis. In early March, the company announced a new share repurchase program worth $5 billion, replacing the older one from 2018.
On May 2, Deutsche Bank analyst Steve Powers maintained a Buy rating on Colgate-Palmolive Company (NYSE:CL) stock and lowered the price target to $88 from $91, acknowledging that the firm had some challenges that it had to conquer in the near term.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm First Eagle Investment Management is a leading shareholder in Colgate-Palmolive Company (NYSE:CL), with 11.2 million shares worth more than $856 million.
6. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 64
The Coca-Cola Company (NYSE:KO) makes and sells beverages. The company has a solid track record in the dividend space. For the past 60 years, the firm had paid a growing dividend to shareholders, attesting to the reliability of the business in different economic situations. On April 27, the company declared a quarterly dividend of $0.44 per share, in line with previous. The forward yield was 2.71%. The dividend is payable to shareholders by early July.
On April 26, Truist analyst Bill Chappell maintained a Buy rating on The Coca-Cola Company (NYSE:KO) stock and raised the price target to $75 from $70, noting that the first quarter results of the firm were strong, with growth exceeding expectations.
Among the hedge funds being tracked by Insider Monkey, Nebraska-based firm Berkshire Hathaway is a leading shareholder in The Coca-Cola Company (NYSE:KO), with 400 million shares worth more than $24.7 billion.
Along with NVIDIA Corporation (NASDAQ:NVDA), The Home Depot, Inc. (NYSE:HD), and Verizon Communications Inc. (NYSE:VZ), The Coca-Cola Company (NYSE:KO) is one of the stocks that elite investors are flocking to as recession fears grow.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and The Coca-Cola Company (NYSE:KO) was one of them. Here is what the fund said:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (The Coca-Cola Company (NYSE:KO)). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
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Disclosure. None. 10 Stocks Smart Investors Buy During Recessions is originally published on Insider Monkey.
