Jim Cramer’s Recession Portfolio: Top 10 Stock Picks

In this article, we will look at Jim Cramer’s top 10 stock picks for a recession. If you want to explore similar stocks that Jim Cramer is recommending for a recession, you can also take a look at Jim Cramer’s Recession Portfolio: Top 5 Stock Picks.

Jim Cramer’s 3 Possible Scenarios For a Recession

Last month, former hedge fund manager and TV personality, Jim Cramer of Mad Money on CNBC, broke down three possible types of a recession that he sees probable. He categorized his recession scenarios as mild, moderate, and severe, and also suggested that each scenario would require a different portfolio. Jim Cramer said that he sees a mild recession to be more probable since “the consumer is in great shape”, according to major U.S. banks. Here is what the journalist investor said:

“When you consider the strong job market and all the money people saved during the pandemic, it’s possible that the consumer can ride out a wave of disappointment.”

Jim Cramer also noted that many companies anticipated a recession and therefore bottomed to levels much worse than the market’s shape. He noted that the stocks that bottomed significantly in anticipation of a moderate or severe recession, also rebounded shortly since the market situation was better than anticipated. Jim Cramer said that “if Wall Street starts assuming we are headed for a spicy recession, not just a mild downturn…”, investors should have high-yielding stocks on their radars, which have enough cash flow to “still make their numbers”. Finally, the veteran stock market expert suggested “ultimate defensive plays” for the severe kind of recession.

Investors are shifting their focus toward defensive names as fears of a recession hit the market. Some of the best defensive plays that can weather a recession include The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Colgate-Palmolive Company (NYSE:CL).

Jim Cramer's Recession Portfolio: Top 10 Stock Picks

Our Methodology

We picked these stocks from Jim Cramer’s program on July 22 in which he recommended several stocks in case of mild, severe and moderate recession scenarios.

Jim Cramer’s Recession Portfolio: Top 10 Stock Picks

10. Micron Technology, Inc. (NASDAQ:MU)

Number of Hedge Fund Holders: 78

Micron Technology, Inc. (NASDAQ:MU) is Jim Cramer’s top pick for a mild recession. He sees the stock rallying above $70 and as of July 29, Micron Technology, Inc. (NASDAQ:MU) is trading at $62.07. At the end of Q1 2022, 78 hedge funds held stakes in Micron Technology, Inc. (NASDAQ:MU). The total value of these stakes came in at $3.42 billion.

On July 26, Micron Technology, Inc. (NASDAQ:MU) announced that it has commenced production of the world’s first 232-layer NAND. The new NAND provides the highest capacity and energy efficiency over the company’s previous NANDs and is designed to facilitate data-intensive use cases in both client and cloud applications.

UBS is also bullish on Micron Technology, Inc. (NASDAQ:MU) and named the company among its top conviction picks. UBS analysts have a $90 price target and a buy-side Overweight rating on Micron Technology, Inc. (NASDAQ:MU). UBS sees the company’s management driving sustainable gross margins even as consumer demand weakens in 2023.

In the second quarter of 2022, Bourgeon Capital raised its stakes in Micron Technology, Inc. (NASDAQ:MU) by 27%. As of June 30, Bourgeon Capital is the top shareholder in Micron Technology, Inc. (NASDAQ:MU), and its stakes in the company are valued at $4.37 million.

While Micron Technology, Inc. (NASDAQ:MU) is a stock that can ride out a mild recession, some of the ultimate defensive plays include The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Colgate-Palmolive Company (NYSE:CL).

9. D.R. Horton, Inc. (NYSE:DHI)

Number of Hedge Fund Holders: 52

D.R. Horton, Inc. (NYSE:DHI) is a leading American homebuilding company that engages in the acquisition and development of land in 33 states. Jim Cramer recommends D.R. Horton, Inc. (NYSE:DHI) for a mild recession and noted that the company reported better-than-expected earnings for its fiscal third quarter of 2022 and is also trading at bargain levels. As of July 29, D.R. Horton, Inc. (NYSE:DHI) has a trailing twelve-month PE ratio of 5.04 and is offering a forward dividend yield of 1.16%.

On July 21, D.R. Horton, Inc. (NYSE:DHI) released earnings for the fiscal third quarter of 2022. The company experienced revenue growth of 20.64% year over year and reported a revenue of $8.79 billion for the quarter. The company’s earnings per share topped Wall Street expectations by $0.15 and came in at $4.67.

On July 22, Citi analyst Anthony Pettinari raised his price target on D.R. Horton, Inc. (NYSE:DHI) to $90 from $73 and reiterated a Buy rating on the shares. The analyst slashed his earnings estimates across the housing sector, citing near-term volume pressures, but said that he sees an upside for D.R. Horton, Inc. (NYSE:DHI).

At the close of Q1 2022, 52 hedge funds held stakes in D.R. Horton, Inc. (NYSE:DHI). The total value of these stakes amounted to $1.94 billion. Of these, Egerton Capital Limited was the largest shareholder in D.R. Horton, Inc. (NYSE:DHI) and has stakes worth $582.58 million in the company, as of March 31.

Here is what Palm Valley Capital Management, an investment management firm, had to say about D.R. Horton, Inc. (NYSE:DHI) in its second-quarter 2022 investor letter:

“Vidler Water was acquired by homebuilder D.R. Horton (NYSE:DHI) during the second quarter for $15.75 per share, a modest 19% premium to the 90-day volume weighted average price. D.R. Horton can use Vidler’s water rights to satisfy government requirements to have water resources available before it breaks ground on new housing developments in Nevada. The takeover price was below our valuation, but D.R. Horton was the only real buyer who stepped up to the plate for Vidler’s assets. The deal appears to have leaked early, since the stock surged in the weeks before the announcement.”

8. Amazon.com, Inc. (NASDAQ:AMZN)

Number of Hedge Fund Holders: 271

On July 28, Amazon.com, Inc. (NASDAQ:AMZN) reported earnings for the fiscal second quarter of 2022. The company reported a loss per share of $0.20, missing estimates by $0.32. However, the company’s revenue for the quarter came in at $121.23 billion, up 7.21% year over year and beat Wall Street estimates by $2.09 billion.

Jim Cramer thinks Amazon.com, Inc. (NASDAQ:AMZN) is one of the few names in retail that can weather a mild recession. He is bullish on Amazon.com, Inc. (NASDAQ:AMZN) because of its advertising and cloud businesses. In the second quarter of 2022, Amazon.com, Inc.’s (NASDAQ:AMZN) cloud business accounted for $19.74 billion of its net sales, 33% year over year from $14.8 billion.

Wall Street is bullish on Amazon.com, Inc. (NASDAQ:AMZN). On July 29, JPMorgan analyst Doug Anmuth raised his price target on Amazon.com, Inc. (NASDAQ:AMZN) to $185 from $175 and reiterated a buy-side Overweight rating on the shares. Anmuth also renamed Amazon.com, Inc. (NASDAQ:AMZN) as one of his top picks and said that even though macro pressures are a headwind, Amazon.com, Inc. (NASDAQ:AMZN) will continue to drive revenue growth in the second half of 2022 from strong execution in its retail and AWS businesses.

At the end of Q1 2022, 271 hedge funds held stakes in Amazon.com, Inc. (NASDAQ:AMZN) worth $48.02 billion. This is compared to 279 positions in Q4 2021 with stakes of $49.16 billion.

In the second quarter of 2022, Locust Wood Capital Advisers raised its stakes in Amazon.com, Inc. (NASDAQ:AMZN) by 1,261%, bringing them to $34.24 million. As of June 30, Locust Wood Capital Advisers is the leading shareholder in the company.

Oakmark Funds, an investment management firm, mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its “Oakmark Select Fund” second-quarter 2022 investor letter. Here is what the firm said:

Amazon (NASDAQ:AMZN) is the leading e-commerce and cloud-computing provider in the world. Two-thirds of U.S. households are Amazon Prime subscribers, and over half of all online product searches now start on Amazon. We believe the company’s strong customer loyalty and massive infrastructure are significant barriers to entry in a growing e-commerce market. Separately, Amazon Web Services (“AWS”) controls nearly half of the market in cloud computing. We believe AWS has become utility-like in nature and scale and we expect healthy growth moving forward as IT workloads continue moving to the cloud. More recently, concerns about rising investment spending have weighed on the stock-as they have in times past-providing us another opportunity to purchase shares at a very attractive price. At our purchase price and valuing AWS like its peers, an investor isn’t paying much of anything for the immensely valuable e-commerce franchise.”

7. Pioneer Natural Resources Company (NYSE:PXD)

Number of Hedge Fund Holders: 54

Pioneer Natural Resources Company (NYSE:PXD) operates as an independent oil and gas exploration and production company in the United States. Jim Cramer is recommending Pioneer Natural Resources Company (NYSE:PXD) for a moderate recession because it is a high-yielding stock.  As of July 29, Pioneer Natural Resources Company (NYSE:PXD) has a trailing twelve-month PE ratio of 14.10 and is offering a forward dividend yield of 5.45%, which the company supports with its free cash flows of $4.64 billion.

Pioneer Natural Resources Company (NYSE:PXD) is also a top energy stock pick of Goldman Sachs’ analysts. Goldman Sachs’ analysts noted that Pioneer Natural Resources Company (NYSE:PXD) has outperformed its peers. They expect the company to declare a dividend of $8.24 per share, which would bring its annualized dividend yield to roughly 15%.

On July 26, Raymond James analyst John Freeman reiterated his Strong Buy rating on Pioneer Natural Resources Company (NYSE:PXD) and changed his price target on the stock to $315 from $375.  Freeman noted that the company’s model suggests a 2023 dividend yield of 13%.

At the end of the first quarter of 2022, 54 hedge funds were bullish on Pioneer Natural Resources Company (NYSE:PXD). These funds held collective stakes of $1.04 billion, up from $1.01 billion in the previous quarter when 43 hedge funds held stakes in the company. The hedge fund sentiment for the stock is positive.

As of March 31, Abrams Bison Investments owns over 0.59 million shares of Pioneer Natural Resources Company (NYSE:PXD) and is the largest shareholder in the company. The fund’s stakes are valued at $149.51 million.

Carillon Tower Advisers named several stocks in their “Carillon Scout Mid Cap Fund” first-quarter 2022 investor letter and Pioneer Natural Resources Company (NYSE:PXD) was one of them. Here is what the firm said:

Pioneer Natural Resources (NYSE:PXD) performed well in a strong energy sector. Pioneer stood out recently with a pledge to return a large majority of free cash flow to shareowners through dividends and stock buybacks, and ended hedging to give shareowners more earnings and dividend potential should oil and gas prices continue to rise.”

6. Dollar General Corporation (NYSE:DG)

Number of Hedge Fund Holders: 53

Discount store companies such as Dollar General Corporation (NYSE:DG) are also among Jim Cramer’s stock recommendations for a moderate downturn because these stores experience strong sales volumes in tough economic times. As of July 29, Dollar General Corporation (NYSE:DG) has a forward dividend yield of 0.90% which it supports with trailing twelve-month free cash flows of $1.53 billion.

Wall Street analysts are bullish on Dollar General Corporation (NYSE:DG). On July 19, Oppenheimer analyst Rupesh Parikh raised his price target on Dollar General Corporation (NYSE:DG) to $275 from $240 and reiterated an Outperform rating on the shares. Moreover, the stock is also among Jefferies’ top recession stock picks.

At the end of Q1 2022, 53 hedge funds were eager on Dollar General Corporation (NYSE:DG) and held stakes worth $2.25 billion in the company. This is compared to 44 positions in the previous quarter with stakes of $2.20 billion. The hedge fund sentiment for the stock is positive.

As of June 30, Varenne Capital Partners owns 0.42 million shares of Dollar General Corporation (NYSE:DG) and is the largest shareholder in the company. The fund’s stakes are valued at $105.41 million.

In addition to Dollar General Corporation (NYSE:DG), consumer spending on staple products offered by The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Colgate-Palmolive Company (NYSE:CL) is expected to remain robust even if the U.S. undergoes a severe recession.

 

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Disclosure: None. Jim Cramer’s Recession Portfolio: Top 10 Stock Picks is originally published on Insider Monkey.