In this article, we will look at Jim Cramer’s top 5 stock picks for a recession. If you want to explore similar stocks that Jim Cramer is recommending for a recession, you can read Jim Cramer’s Recession Portfolio: Top 10 Stock Picks.
5. Coterra Energy Inc. (NYSE:CTRA)
Number of Hedge Fund Holders: 39
Coterra Energy Inc. (NYSE:CTRA) is an independent oil and gas company that engages in the development, exploration, and production of oil, natural gas, and natural gas liquids in the United States. On July 19, Mizuho analyst Vincent Lovaglio reiterated his Buy rating on Coterra Energy Inc. (NYSE:CTRA) and revised his price target to $40 from $44.
According to Jim Cramer, Coterra Energy Inc. (NYSE:CTRA) is a high-yielding dividend stock that should be on investors’ radars if the U.S. enters a moderate recession. As of July 29, Coterra Energy Inc. (NYSE:CTRA) has a trailing twelve-month PE ratio of 11.22 and is offering a forward dividend yield of 2.00%, which the company backs with free cash flows of $1.82 billion.
At the end of Q1 2022, 39 hedge funds were long Coterra Energy Inc. (NYSE:CTRA) and held stakes worth $551.53 million in the company. This is compared to 37 positions in the preceding quarter with stakes of $499.96 million. The hedge fund sentiment for the stock is positive.
In the second quarter of 2022, ZWEIG DIMENNA PARTNERS raised its stakes in Coterra Energy Inc. (NYSE:CTRA) by 34%, bringing them to $10.1 million. As of June 30, ZWEIG DIMENNA PARTNERS owns over 0.39 million shares of Coterra Energy Inc. (NYSE:CTRA) and is the largest shareholder in the company.
Here is what Diamond Hill Capital had to say about Coterra Energy Inc. (NYSE:CTRA) in its “Diamond Hill Long-Short Fund” first-quarter 2022 investor letter:
“Other top contributors in Q1 included energy exploration and production company Coterra Energy (NYSE:CTRA). The company benefited from increased energy demand as COVID-related economic restrictions eased in tandem with concerns regarding supply interruptions related to Russia’s invasion of Ukraine.”
4. Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 40
Dollar Tree, Inc. (NASDAQ:DLTR) is a leading discount store retailer in the United States. The company operates through two segments: Dollar Tree and Family Dollar. As of July 2022, Dollar Tree, Inc. (NASDAQ:DLTR) operates more than 15,500 stores that are spread across 48 states in the U.S. and five Canadian provinces. On June 29, Truist analyst Scot Ciccarelli reiterated a Buy rating and his $178 price target on Dollar Tree, Inc. (NASDAQ:DLTR).
Dollar Tree, Inc. (NASDAQ:DLTR) is another discount store retailer that Jim Cramer thinks can weather a moderate recession. Moreover, UBS analysts also named the stock among their top conviction picks for a recession. UBS analysts have an Overweight rating and $185 price target on Dollar Tree, Inc. (NASDAQ:DLTR).
Hedge funds are raising their stakes in Dollar Tree, Inc. (NASDAQ:DLTR). At the end of Q1 2022, 40 hedge funds held stakes in Dollar Tree, Inc. (NASDAQ:DLTR). The total value of these stakes came in at $3.56 billion, up from $1.76 billion in the previous quarter with 44 positions.
In the first quarter of 2022, Mantle Ridge LP raised its stakes in Dollar Tree, Inc. (NASDAQ:DLTR) and brought them to $1.82 billion. As of March 31, the fund owns over 11.36 million shares of the company and is the largest shareholder.
Here is what Broyhill Asset Management had to say about Dollar Tree, Inc. (NASDAQ:DLTR) in its fourth-quarter 2021 investor letter:
“Our short-term trade in Avis was unusual for our long-term investment approach, but occasionally the market figures out mispricing sooner than later, and when it does, we are more than happy to take our chips off the table and wait for the next opportunity.
Our investment in Dollar Tree, which we’ve held for nearly five years, is more representative of our typical time horizon and investment philosophy, which seeks mispriced assets with minimal downside and the potential to double our capital over 3-5 years. Those doubles rarely play out as quickly as the surge in rental car pricing. Just last quarter, we highlighted Dollar Tree as a top detractor
after the company issued weak guidance due to rising cost pressure. Investors were rightly frustrated after years of management missteps and false starts following the acquisition of Family Dollar.At some point, we hoped, sentiment would be just right. While the timing of that scenario is impossible to predict, we increased our position in September as shares traded back towards our original 2017 purchase price. At month end, the board increased Dollar Tree’s existing share repurchase authorization to $2.5 billion, representing~ 13% of the company’s then market capitalization, initiating a dramatic shift in investor sentiment. Management also announced that it was on track to have 500 Dollar Tree Plus stores by fiscal year-end, with another 1,500 stores planned for FY22 and at least 5,000 expected by FY24. In addition, management highlighted the success of the company’s Combo Stores (which include both Dollar Tree and Family Dollar banners), noting sales and gross profit increases greater than 20% and 30%, respectively. While there are only 105 existing Combo Stores, management expects to add 400 more in FY22, with the potential for up to 3,000 over the next several years.
In our experience, big gains often come after years of meager performance. Patience truly is a virtue in this business, as successful investing requires confidence in your research and analysis, even when the market disagrees with you for what may seem like an eternity. In this case, after holding Dollar Tree for half a decade, shares nearly doubled, gaining 77% in the two months following that management announcement. Despite recent gains, we continue to hold our investment as consensus estimates have yet to catch up to the likely inflection in earnings power from higher price points. And with the guidance of Richard Dreiling, the former Dollar General CEO, credited with turning around DG in the early part of the last decade, we think the odds of successful execution have increased materially.”
3. Constellation Brands, Inc. (NYSE:STZ)
Number of Hedge Fund Holders: 41
Constellation Brands, Inc. (NYSE:STZ) produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company offers its products under premium labels such as Corona, Victoria, Cook’s California Champagne, Cooper & Thief, Kim Crawford, Casa Noble, and Copper & Kings among others. Constellation Brands, Inc. (NYSE:STZ) is one of Jim Cramer’s top recommendations for a severe recession.
Wall Street is bullish on Constellation Brands, Inc. (NYSE:STZ). On July 5, Barclays analyst Lauren Lieberman raised her price target on Constellation Brands, Inc. (NYSE:STZ) to $281 from $272 and reiterated a buy-side Overweight rating on the shares. The analyst cited solid fundamentals across the beer, wine & spirits market to support her bull case. On July 13, Redburn analyst Tristan Van Strien initiated coverage of Constellation Brands, Inc. (NYSE:STZ) with a Buy rating.
As of July 29, Constellation Brands, Inc. (NYSE:STZ) has gained 9.79% over the past twelve months and is offering a forward dividend yield of 1.30%, which the company supports with trailing twelve-month free cash flows of $1.63 billion.
At the end of Q1 2022, 41 hedge funds held stakes in Constellation Brands, Inc. (NYSE:STZ) worth $982.32 million. Of these, Harris Associates was the most prominent shareholder and held stakes worth $771.77 million in the company.
2. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 83
Johnson & Johnson (NYSE:JNJ) is Jim Cramer’s top stock pick from the healthcare sector for a severe recession. As of July 29, Johnson & Johnson (NYSE:JNJ) has gained 1.74% year to date and is offering a forward dividend yield of 2.61%. The company is a dividend aristocrat and has been consistently growing its dividends for well past 50 years. The company has an annual payout ratio of 43.14% and a 5-year dividend CAGR of 5.87%.
On July 19, Johnson & Johnson (NYSE:JNJ) released market-beating earnings for the fiscal second quarter of 2022. The company reported earnings per share of $2.59 and exceeded Wall Street expectations by $0.04. Johnson & Johnson (NYSE:JNJ) reported revenue of $24.02 billion for the quarter, up 3.04% year over year, and ahead of market consensus by $195.47 million.
On July 20, SVB Securities analyst David Risinger revised his price target on Johnson & Johnson to $194 from $200 and reiterated a buy-side Outperform rating on the shares.
Hedge funds are piling into Johnson & Johnson (NYSE:JNJ). At the close of Q1 2022, 83 hedge funds were long Johnson & Johnson (NYSE:JNJ) with stakes worth $7.40 billion. This is compared to 83 positions in the preceding quarter with stakes worth $7.38 billion.
In the second quarter of 2022, Bailard Inc raised its stakes in Johnson & Johnson (NYSE:JNJ) by 10%, bringing them to $23.39 million. As of June 30, Bailard Inc owns over 0.13 million shares of Johnson & Johnson (NYSE:JNJ) and is the largest shareholder in the company.
1. PepsiCo, Inc. (NYSE:PEP)
Number of Hedge Fund Holders: 62
From the consumer staples sector, Jim Cramer thinks PepsiCo, Inc. (NYSE:PEP) should be on investors’ radars if the U.S. goes into a severe recession. As of July 29, PepsiCo, Inc. (NYSE:PEP) has soared 11.47% over the past twelve months and is offering a forward dividend yield of 2.68%, which the company backs with trailing twelve-month free cash flows of $6.33 billion.
Wall Street is bullish on PepsiCo, Inc. (NYSE:PEP). On July 6, JPMorgan analyst Andrea Teixeira adjusted her price target on PepsiCo, Inc. (NYSE:PEP) to $185 from $186 and reiterated a buy-side Overweight rating on the shares. The analyst noted that the risk/reward for PepsiCo, Inc. (NYSE:PEP) is favorable at current valuation levels. On July 8, Morgan Stanley analyst Dara Mohsenian reiterated his Overweight rating and $198 price target on PepsiCo, Inc. (NYSE:PEP).
On July 12, PepsiCo, Inc. (NYSE:PEP) reported strong earnings for the fiscal second quarter of 2022. The company registered an EPS of $1.86 and outperformed Wall Street consensus by $0.12. Moreover, the company’s revenue for the quarter came in at $20.23 billion, up 5.25% year over year, and beat market expectations by $715.34 million
At the end of Q1 2022, 62 hedge funds disclosed ownership of stakes in PepsiCo, Inc. (NYSE:PEP). The total stakes of these hedge funds amounted to $4.86 billion, up from $4.64 billion in Q4 2021 with 60 positions. The hedge fund sentiment for the stock is positive.
In the second quarter of 2022, Bailard Inc raised its stakes in PepsiCo, Inc. (NYSE:PEP) by 6%, bringing them to $12.76 million. As of June 30, Bailard Inc is the top shareholder in the company.
Here is what ClearBridge Investments had to say about PepsiCo, Inc. (NASDAQ:PEP) in its Q4 2021 investor letter:
“The pandemic created opportunities for us to be more aggressive in a variety of areas of the market. We were opportunistic throughout the year. After a strong year for equities, we sought to bolster more defensive areas of the portfolio and added to PepsiCo, increasing our exposure to a high-quality and stable name.”
You can also take a look at 10 Stocks to Buy Before the Next Recession and The 9 China Rebound Stocks to Buy According to Jim Cramer.
