In this piece, we will take a look at the ten best economic recovery stocks to buy. If you want to skip our economic analysis and want to jump ahead to the top stocks in this list, then take a look at 5 Best Economic Recovery Stocks to Buy.
The economy, safe to say, has even shocked the best of analysts. A growing collection of analysts and economists have been projecting a recession for nearly a year now, as they were shaken by the Federal Reserve’s aggressive interest rate hiking cycle last year. However, as of June 2023, a recession is nowhere in sight and stock markets have set new records for performance in the first half of a calendar year.
The latest bit on the economic front is the jobs report from the Labor Department for June. This was one of the most highly anticipated reports for the year since it was due just a day after a shocking private payroll report by ADP that had smashed estimates of job growth by a mile. However, the Labor report was the opposite, as it actually failed to meet estimates. The data showed that 209,000 jobs were added in the month, which was below the average for 2023 and estimates. At the same time, hourly earnings jumped by 0.4% sequentially, making this data release another conflicting set when it comes to stock market bulls and bears.
With the June 2023 jobs data behind us, the next thing on investors’ minds is earnings season. Like the report, it is another highly anticipated event, as the data will paint a picture of the economy in the second quarter of 2023. Recession, despite strength in the jobs market, is still a possibility in America and investors will be on the lookout for whether companies report growth or see their earnings remain flat. The second week of July will end with earnings from two important firms that generally do well in a recession. These are PepsiCo, Inc. (NASDAQ:PEP) and Conagra Brands, Inc. (NYSE:CAG). For its quarter ending in May, the average consensus estimates for Conagra sit at $59 cents for earnings per share (EPS) with growth expected to drop to sit at negative 9.20%. On a positive note though, the firm has beaten EPS estimates by a mile for its previous two quarters as well as posting EPS higher than expected for Q2 and Q3 2022.
Pepsi, one of the biggest consumer defensive companies in the world, can see growth drop by 3.2% and EPS sit at $1.8 according to average estimates by 16 analysts. Like Conagra, Pepsi has also beaten EPS estimates for all of its previous four quarters. After the two crucial consumer defensive companies, an important set of banks are due to report their earnings. This list includes some of the biggest banks in the world, containing big ticket names such as JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), and Citigroup Inc. (NYSE:C) as well as the investment behemoth BlackRock, Inc. (NYSE:BLK).
Bank earnings will be some of the most important ones to watch in the aftermath of the rather historic banking crisis earlier this year that nearly blew the pants off of everyone. As a whole, most analysts and economists expect bank earnings to stay weak due to a variety of factors such as a housing and mortgage slowdown from high rates and a tighter investment and liquidity environment overall. Looking at past trends though, Citi and JPMorgan have beaten analyst EPS estimates for their previous three quarters while Wells Fargo has struggled.
Another key sector to watch during the earnings season is technology. Within this sector, the firms that are expected to capitalize from the boom in artificial intelligence are critical since their Some top hedge fund artificial intelligence stock picks that we’ve identified include Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOGL). AI has led the stock market boom this year, especially in the NASDAQ 100 index as investors flocked to these companies in their hunt for optimism in the midst of a dour economic environment. Briefly gauging the performance of these companies on a technical basis, both Microsoft and NVIDIA have cleared their 200 day simple moving averages, making them set new price levels. On the flip side, small cap artificial intelligence stocks such as BigBear.ai Holdings, Inc. (NYSE:BBAI) have either failed to cross this level, or others like SoundHound AI, Inc. (NASDAQ:SOUN) are still struggling to stay above the 200 day SMA.
As to what investors are thinking about the long term prospects for the economy, here’s what the billionaire Ron Baron of Baron Capital believes lies ahead:
And so one of the things I think is really important is that we don’t worry about stock market, we don’t worry about interest rates, economy, what the government’s gonna do, wars. In my whole history, it’s never been a good news year, with one exception when they took down the wall between East and West Germany. That’s it. One good year in my whole career. Yet, the stock market in this whole period of time, with terror attacks, inflation, and wars, and pandemic, with all of that going on, the stock market is up 34 times since 1970 when I began my career. It was a thousand then, it’s now 34,000.
The economy by the way, in the whole period of time, was also, is up 33 times, its gone from $800 billion of GDP to 26 and a quarter billion. So despite all this stuff everyone talks about all day long and kind of fear what’s going to happen, the market’s up 33 times. What I think is growth is now beginning to accelerate, and over the next fifty years, compared to the last fifty years, I think that you’re gonna have faster growth than 7%, but assuming that it you’ve seen 7%, that means that you’re gonna have 35 times your money over the next fifty years, which means that the Dow Jones which is now 34,000 will be 900,000. So when everyone talks about well is it gonna be 32,000 or 33,000, I’m thinking about 900,000.
So what stocks should one consider during an economic recovery? Well, we’ve made a list and some top names are PDD Holdings Inc. (NASDAQ:PDD), Sea Limited (NYSE:SE), and Sarepta Therapeutics, Inc. (NASDAQ:SRPT).
Image by Gerd Altmann from Pixabay
Our Methodology
To compile our list of the best stocks for an economic recovery, we made a list of fifty companies with strong sales growth over the past five years and significant share price target upside over the current price. Then, they were ranked based on the number of hedge fund investors in Q1 2023 out of 943 hedge funds, out of which the top ten stocks for an economic recovery as are follows.
10 Best Economic Recovery Stocks to Buy
10. Build-A-Bear Workshop, Inc. (NYSE:BBW)
Number of Hedge Funds In Q1 2023: 18
Build-A-Bear Workshop, Inc. (NYSE:BBW) is a consumer cyclical firm that sells specialty products such as toys, clothes, and accessories. Its products are dependent on consumers’ disposable income, which tends to improve in an economic recovery. Additionally, while its current share price is $22, the average share price target is $41.
For the first quarter of this year, 18 of the 943 hedge funds polled by Insider Monkey had held a stake in Build-A-Bear Workshop, Inc. (NYSE:BBW). The firm’s biggest hedge fund shareholder is J. Carlo Cannell’s Cannell Capital since it owns 1.2 million shares that are worth $28 million.
Alongside Sea Limited (NYSE:SE), PDD Holdings Inc. (NASDAQ:PDD), and Sarepta Therapeutics, Inc. (NASDAQ:SRPT), Build-A-Bear Workshop, Inc. (NYSE:BBW) is a top stock for an economic recovery.
9. New Fortress Energy Inc. (NASDAQ:NFE)
Number of Hedge Funds In Q1 2023: 28
New Fortress Energy Inc. (NASDAQ:NFE) is a gas company that provides the fuel to different industrial and power users. 11 of the 12 analysts that covered its stock in June had rated the shares as a Buy or Strong Buy, and the firm’s average share price target is $52.
As of March 2023, 28 of the 943 hedge funds part of Insider Monkey’s database had bought New Fortress Energy Inc. (NASDAQ:NFE)’s shares. Out of these, the firm’s largest shareholder is Michael Novogratz’s Fortress Investment Group with a $394 million stake.
8. Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE)
Number of Hedge Funds In Q1 2023: 29
Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) is a biotechnology company that develops drugs to treat genetic diseases. It is another stock with an average rating of Strong Buy, and the average share price target of $91 is more than twice the current share price of $44.55.
Insider Monkey took a look at 943 hedge funds for their first quarter of 2023 investments to find out that 29 had invested in the firm. David Witzke and Michael Gregory’s Avidity Partners Management is the largest investor in our database, with an investment worth $85 million.
7. Axonics, Inc. (NASDAQ:AXNX)
Number of Hedge Funds In Q1 2023: 30
Axonics, Inc. (NASDAQ:AXNX) is a healthcare company that makes and sells medical devices for bladder problems. All analysts that covered its stock in July had rated the shares as Buy or Strong Buy, with the average of 12 price targets being $77.75. The current share price is $49.
30 of the 943 hedge funds surveyed by Insider Monkey for their Q1 2023 investments had held Axonics, Inc. (NASDAQ:AXNX)’s shares. The firm’s largest investor is Steve Cohen’s Point72 Asset Management since it owns $58 million worth of shares.
6. Cytokinetics, Incorporated (NASDAQ:CYTK)
Number of Hedge Funds In Q1 2023: 35
Cytokinetics, Incorporated (NASDAQ:CYTK) is a biotechnology company that develops treatments for heart problems and muscular disorders. Its shares are rated Strong Buy on average and it kicked off Phase 3 trials for people who find it difficult to exercise due to heart problems in June 2023.
After digging through 943 hedge fund portfolios for their first quarter of 2023 shareholdings, Insider Monkey found out that 35 had bought and owned a stake in the company. Brian Ashford-Russell and Tim Woolley’s Polar Capital is the largest hedge fund investor in our database, courtesy of its $91 million investment.
PDD Holdings Inc. (NASDAQ:PDD), Cytokinetics, Incorporated (NASDAQ:CYTK), Sea Limited (NYSE:SE), and Sarepta Therapeutics, Inc. (NASDAQ:SRPT) are some great stocks for an economic recovery.
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Disclosure: None. 10 Best Economic Recovery Stocks to Buy is originally published on Insider Monkey.