In this article, we will take a detailed look at the 13 Best Stocks To Buy Before Recessions.
The hard landing versus soft landing debate is back in the limelight amid latest data points showing the stubbornness of inflation and warnings from some analysts that amid the fast depleting household savings in the US, the economy might not be able to endure the pressures like it did last year.
Hard Landing Probability is Rising
A Reuters report recently said that in the options market bets are rising for a hard landing scenario. The report said in the options market there has been a rise in demand for so-called “receiver swaptions,” a type of trade that pays off when interest rates fall. The Reuters report also quoted Bruno Braizinha, interest rates strategist at BoFA Securities in New York, who said that risks are “roughly balanced between a hard landing and no landing” from a macroeconomic perspective. However, the analyst reportedly said the options market bets are now tilting towards a hard landing scenario.
“But the options market is pricing those probabilities more skewed towards a hard landing,” Braizinha said.
Andrew Hollenhorst, Citi chief U.S. economist, recently said while talking to CNBC that he does not see a soft landing scenario in the data. The analyst pointed to a decline in retail sales in the US and high inflation numbers for this thesis. Hollenhorst said while the US economy was in a strong position near the end of 2023, latest data is showing signs of troubles to come. He said the latest jobs report shows a decline in the number of hours people are working and a dip in full-time jobs. He also sees a decline in labor market jobs like restaurants, which he believes is an important indicator for the economy.
Methodology
In this context, it might be the right time to see which recession-proof stocks smart money investors are piling into to weather the coming storm. Stocks from sectors like healthcare, consumer defensive and utilities perform well during recessions. For this article we first listed down holdings of key ETFs that constitute recession-proof portfolios like Goldman Sachs’ Defensive Equity ETF, Invesco Defensive Equity ETF, The Health Care Select Sector SPDR Fund (XLV), The Utilities Select Sector SPDR Fund (XLU), etc. and gauged hedge fund sentiment for these holdings. From these stocks we picked 13 stocks with the highest number of hedge fund investors. We tried to pick best stocks to buy before recessions from different sectors and industries to make our list more diversified.
Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
13. AbbVie Inc (NYSE:ABBV)
Number of Hedge Fund Investors: 73
AbbVie Inc (NYSE:ABBV) is a text-book name to buy for recessions and troubled economic times. The stock has a dividend yield of about 3.5% as of February 8. The pharmaceutical company AbbVie Inc’s (NYSE:ABBV) shares have gained about 21% over the past one year. AbbVie Inc (NYSE:ABBV) has decades of consistent dividend increases under its belt.
As of the end of the third quarter of 2023, 73 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in AbbVie Inc (NYSE:ABBV) . The most notable stakeholder of AbbVie Inc (NYSE:ABBV) was Paul Marshall and Ian Wace’s Marshall Wace LLP which owns a $582 million stake in AbbVie Inc (NYSE:ABBV).
Carillon Eagle Mid Cap Growth Fund made the following comment about AbbVie Inc. (NYSE:ABBV) in its Q3 2023 investor letter:
“AbbVie Inc. (NYSE:ABBV) reported strong, broad-based second-quarter performance that exceeded analysts’ expectations. The company’s raised guidance was a nice recovery after its mildly disappointing first-quarter report.”
12. Cigna Group (NYSE:CI)
Number of Hedge Fund Investors: 74
Cigna Group (NYSE:CI) is another name in the healthcare industry that is among the favorites of smart money managers when economic downturns begin. BofA recently said in its report that it believes market “narrowness” will shift and returns will spread to other companies as well. It is bullish on several companies, including Cigna Group (NYSE:CI), for which it has a $370 price target. This price target shows a strong upside potential to the stock’s current price of $341.
A total of 74 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Cigna Group (NYSE:CI).
Here is what Davis New York Venture Fund has to say about The Cigna Group (NYSE:CI) in its Q3 2023 investor letter:
“In the attractive healthcare sector, we look beyond the obvious to identify businesses that simultaneously have exposure to this growth industry and also trade at low prices. We’re especially drawn to companies like Cigna Group, whose products or services play a part in helping to mitigate healthcare’s constantly rising costs. The healthcare industry has been a growing part of the U.S. economy for decades. As a result, many companies in this sector trade at high valuations reflecting their robust but well-known reputation for growth. For value-conscious investors like us, investing in healthcare requires looking beyond the obvious to identify businesses that have exposure to this growth industry but which trade at low prices. Furthermore, recognizing that the constantly rising cost of healthcare cannot go on forever, we have been particularly drawn to companies whose products or services play some role in managing or reducing the cost of care. As a result, we have positions in Cigna Group, a well-regarded provider of managed care.
11. Procter & Gamble Co (NYSE:PG)
Number of Hedge Fund Investors: 75
Procter & Gamble Co (NYSE:PG) is one of the most popular defensive stocks both retail and institutional investors like. Procter & Gamble Co’s (NYSE:PG) consistent dividend increases for over six decades and its diversified business model make it an ideal stock to own before or during recessions.
A total of 75 hedge funds in Insider Monkey’s database of 910 hedge funds had stakes in Procter & Gamble Co (NYSE:PG). The most significant stake in Procter & Gamble Co (NYSE:PG) is owned by Ken Fisher’s Fisher Asset Management which owns a $1.5 billion stake in Procter & Gamble Co (NYSE:PG).
Madison Sustainable Equity Fund stated the following regarding The Procter & Gamble Company (NYSE:PG) in its fourth quarter 2023 investor letter:
“We sold The Procter & Gamble Company (NYSE:PG). After two years of strong pricing growth, the company is facing slower market growth in both the US and Europe. China, the company’s second largest individual market, is facing a protracted downturn with poor visibility on when fundamentals will improve.”
10. DexCom Inc (NASDAQ:DXCM)
Number of Hedge Fund Investors: 78
Glucose monitoring systems company DexCom Inc (NASDAQ:DXCM) is a notable stock to buy before recessions because the demand of DexCom Inc’s (NASDAQ:DXCM) products is relatively safe from the effects of economic downturns.
In December, UBS published its list of top global stocks. DexCom Inc (NASDAQ:DXCM) was part of the list.
A total of 78 hedge funds tracked by Insider Monkey had stakes in DexCom Inc (NASDAQ:DXCM). The biggest stake in DexCom Inc (NASDAQ:DXCM) is owned by Israel Englander’s Millennium Management which owns a $259 million stake in DexCom Inc (NASDAQ:DXCM).
Carillon Eagle Mid Cap Growth Fund stated the following regarding DexCom, Inc. (NASDAQ:DXCM) in its fourth quarter 2023 investor letter:
“DexCom, Inc. (NASDAQ:DXCM) is a developer and manufacturer of continuous glucose monitors (CGMs). CGMs are currently used by Type 1 and insulin-intensive Type 2 diabetics to control blood glucose levels more effectively than intermittent fi nger sticks. The company’s stock declined in 2023 due to investor concerns surrounding the potential impact that glucagon-like peptide 1 (GLP-1) medications could have on demand for their products. Contrary to initial belief, internal analysis uncovered that patients taking GLP-1s used CGMs at twice the rate of patients not on GLP-1s. This, and the company’s excellent results for the third quarter, caused the stock price to rebound significantly.”
9. Intuitive Surgical, Inc. (NASDAQ:ISRG)
Number of Hedge Fund Investors: 78
Intuitive Surgical, Inc. (NASDAQ:ISRG) has already defied all fears and downturns over the past few months as the stock is up about 57% over the past one year.
Intuitive Surgical, Inc. (NASDAQ:ISRG) is working on robotic products that are used in surgeries.
Insider Monkey’s database shows that 78 hedge funds tracked by Insider Monkey were long Intuitive Surgical, Inc. (NASDAQ:ISRG) as of the end of the third quarter.
Baron Health Care Fund stated the following regarding Intuitive Surgical, Inc. (NASDAQ:ISRG) in its fourth quarter 2023 investor letter:
“Additional tailwinds to performance came from robotic surgical system pioneer Intuitive Surgical, Inc. (NASDAQ:ISRG). We believe Intuitive Surgical will continue to innovate and launch new products that enhance surgical outcomes, and we think the company has a long runway for growth.
Intuitive Surgical, Inc. sells the da Vinci surgical robotic system for minimally invasive surgical procedures. The stock rose on investor speculation that the company could launch a new robotic system in 2024. We believe Intuitive Surgical will continue to innovate and launch new products that enhance surgical outcomes, and we think the company has a long runway for growth.”
8. Walmart Inc (NYSE:WMT)
Number of Hedge Fund Investors: 80
Walmart Inc (NYSE:WMT) is a classic name to own before or during recessions. Everyone needs to buy groceries and essentials and Walmart Inc (NYSE:WMT) is a name that comes to mind when you think of buying groceries. As of February 2023 Walmart Inc (NYSE:WMT) is a dividend kind, having raised its payouts consistently for the past 50 years .
Earlier this month, CFRA published its list of 5-star rated dividend aristocrat stocks. Walmart Inc (NYSE:WMT) made it to the list.
A total of 80 hedge funds tracked by Insider Monkey had stakes in Walmart Inc (NYSE:WMT).
7. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Investors: 84
With decades of dividend increases and a strong and diversified business model, Johnson & Johnson (NYSE:JNJ) ranks seventh in our list of the best stocks to buy before recessions. BofA Securities recently published a list of least-shorted stocks. Johnson & Johnson (NYSE:JNJ) made it to the list.
A total of 84 hedge funds in Insider Monkey’s database of 910 hedge funds had stakes in Johnson & Johnson (NYSE:JNJ).
ClearBridge Large Cap Value Strategy made the following comment about Johnson & Johnson (NYSE:JNJ) in its Q3 2023 investor letter:
“The health care space provided some opportunities in the quarter, as we increased our exposure to medical device company Becton, Dickinson as well as large cap pharmaceutical company Johnson & Johnson (NYSE:JNJ). Johnson & Johnson recently spun out its consumer health care business, becoming a more focused yet broadly diversified pharmaceutical and medtech company.”
6. UnitedHealth Group Inc (NYSE:UNH)
Number of Hedge Fund Investors: 104
UnitedHealth Group Inc (NYSE:UNH) is one of the top healthcare stocks to buy and hold for recessions. Recently, BofA set a price target of $675 for UnitedHealth Group Inc (NYSE:UNH) stock. This price target shows a huge upside potential compared to the current stock price of $519.
As of the end of the third quarter of 2023, 104 hedge funds tracked by Insider Monkey had stakes in UnitedHealth Group Inc (NYSE:UNH).
Wedgewood Partners stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its fourth quarter 2023 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH) contributed less to portfolio performance than the majority of our holdings during the quarter. The Company reported double-digit revenue, operating earnings and earnings per share growth during their third quarter. The Company has been able to adjust pricing in its health care segment to keep up with medical cost inflation while working with its Optum units to deliver more value-based care that replaces the traditional fee for service health care model. Value-based care is a sensible, long-term growth opportunity for the Company to pursue and also differentiates it from the vast majority of healthcare providers, particularly as it relates to Medicare patients. For example, the Company’s value-based care programs provide more preventative care opportunities and home-based care visits for patients which helps save the U.S. healthcare system billions in unnecessary spending while also providing patients with better outcomes, as diseases and behaviors are caught or corrected at earlier stages. The Company has invested in several core assets over many years to execute this value-based strategy and it will become the standard of care as the proportion of people in the U.S. with healthcare insurance coverage continues to reach new highs.”
5. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 134
Apple Inc (NASDAQ:AAPL) is one of the best stocks to own during or before recessions as well as during market bull runs since Apple Inc’s (NASDAQ:AAPL) products have a strong demand which is expected to remain robust for decades to come. Apple Inc (NASDAQ:AAPL) is also a dividend payer with years of consistent payments and a strong growth track record.
Apple Vision Pro is the latest Apple Inc (NASDAQ:AAPL) product to create waves around the world. Wedbush’s Dan Ives recently said he’s surprised to see a strong demand for the headset.
“While price points are clearly high at $3,500 with a limited audience outside of developers out of the gates, we are surprised at the early mass market appeal Vision Pro is sparking with a jaw dropper 600 apps (and counting) built for Vision Pro well above expectations,” Ives said in a note. He has a $250 price target on the stock.
Bireme Capital stated the following regarding Apple Inc. (NASDAQ:AAPL) in its fourth quarter 2023 investor letter:
“We also shorted Apple Inc. (NASDAQ:AAPL) in Q3. At our average price of around $190 per share, Apple traded at 30x peak earnings and a $2.8 trillion market cap. While Apple is indeed a magnificent company, this valuation is simply too rich for a business with a substantial cyclical component. The company is projected to grow revenue at a mere 4% rate between 2022 and 2026. We think the total return on Apple stock will be lower than the market, and especially our long positions, over the next few years.”
4. Visa Inc (NYSE:V)
Number of Hedge Fund Investors: 167
Visa Inc (NYSE:V) continues to thrive even during recession because Visa Inc (NYSE:V) is the backbone of a major chunk of financial transactions taking place in the world. Visa Inc (NYSE:V) is also a dividend payer, with 15 years of consistent dividend increases.
In its October 2023 investor letter, Lakehouse Capital stated the following regarding Visa Inc. (NYSE:V):
“Visa Inc. (NYSE:V) reported a strong result with net revenue increasing 11% year-on-year to $8.6 billion and non-GAAP earnings per share increasing by 21% to $2.33. As has been the case for many years now, the scalable nature of the business allows for revenue growth to outpace its costs, which places the company in a good position to navigate through this inflationary period. The network continues to grow, with credentials and merchant locations up 7% and 17%, respectively. Cross-border travel-related spend also maintained its robust growth, increasing 26% year-on-year while Visa Direct reported 7.5 billion transactions, up 19% yearon-year, progressing on penetrating categories such as cross-border remittances. Altogether, we’re pleased with how the business is tracking and remain positive on Visa’s outlook.”
3. Alphabet Inc Class A (NASDAQ:GOOGL)
Number of Hedge Fund Investors: 221
Search. YouTube. Health Sciences. Cloud. AI. Machine Learning. The list of growth catalysts for Alphabet Inc Class A (NASDAQ:GOOGL) keeps increasing. Many believe it is one of the undervalued stocks to buy for the long term as the market is still not appreciating Alphabet Inc Class A’s (NASDAQ:GOOGL) business expansion while the stock’s valuation also remains depressed amid fears that AI tools like Perplexity and ChatGPT might dent Alphabet Inc Class A’s (NASDAQ:GOOGL) search business. But experts say such fears are overblown.
The FPA Crescent Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its fourth quarter 2023 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) continued going from strength to strength during 2023 despite concerns that competition may infringe on the company’s dominant position in Search. Thus far, Alphabet has continued to hold its own, and we look forward to seeing how the company incorporates further AI developments across the Alphabet ecosystem. Lastly, we are hopeful that the impending arrival of a new CFO will bring a renewed focus on efficiency – an area where we believe Alphabet has ample room for improvement.”
2. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Amazon.com Inc (NASDAQ:AMZN) keeps thriving even during recessions since Amazon.com Inc’s (NASDAQ:AMZN) platform is used by millions to buy essentials. Amazon.com Inc’s (NASDAQ:AMZN) Cloud business AWS also provides a backbone to millions of websites and small businesses that operate online around the world.
It is the fourth biggest holding of the Goldman Sachs Defensive Equity ETF.
A total of 286 hedge funds had stakes in Amazon.com Inc (NASDAQ:AMZN) as of the end of the third quarter of 2023.
Polen Focus Growth Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its fourth quarter 2023 investor letter:
“For the full year, the top relative and absolute contributors were Amazon.com, Inc. (NASDAQ:AMZN), Salesforce, and ServiceNow. Amazon shares appreciated 88% in 2023, driven primarily by rapidly expanding operating profit margins and free cash flow growth. After the pandemic, Amazon experienced a period of inefficiency and overinvestment in its distribution and logistics infrastructure. Amazon is now leveraging these investments as growth returned to its e-commerce business in 2023 after a highly unusual 2022. At the same time, Amazon’s rapidly growing and high-margin advertising business is contributing strongly to the entire company’s operating profit growth. The AWS (Amazon Web Services) cloud infrastructure and services business continued to slow in 2023 as customers anticipating a more difficult economic environment looked to save money on their cloud spend, but these cloud spending optimizations began to stabilize in the second half of 2023. We now expect customer interest in generative AI will begin to contribute to growth.”
1. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 306
Microsoft Corp (NASDAQ:MSFT) is among the most popular stock among the elite hedge funds tracked by Insider Monkey. It is also the biggest holding of the Goldman Sachs’ Defensive Equity ETF. What makes Microsoft Corp (NASDAQ:MSFT) a strong stock to buy before recessions is its huge penetration in the enterprise sector which makes its products indispensable for small businesses, offices and individuals. Microsoft Corp’s (NASDAQ:MSFT) huge investments in AI and its plans to revive search business are also expected to bear fruit in the coming years.
Madison Sustainable Equity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its fourth quarter 2023 investor letter:
“Microsoft Corporation’s (NASDAQ:MSFT) sustainable scorecard was updated with an unchanged rating of Above Average. The company’s board has an official Environmental, Social, and Public Policy Committee in addition to the traditional Audit, Compensation, and Governance committees. For ten years, Microsoft has publicly released data measuring the diversity of its workforce. With the prominence of Artificial Intelligence (AI), the company has launched a 5-point blueprint for governing AI to address public policy and regulation. Environmentally, Microsoft has multiple programs to be carbon negative by 2030. The company has signed Purchase Power Agreements for carbon-free energy totaling 13.5 Gigawatts.”
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Disclosure: None. 13 Best Stocks To Buy Before Recessions is originally published on Insider Monkey.
