In this article, we will look at 10 best recession stocks to buy according to Wells Fargo. If you want to explore similar stocks, you can also take a look at 5 Best Recession Stocks to Buy According to Wells Fargo.
This June Wells Fargo unveiled its “Recession Stock Portfolio” right before the Fed issued its latest rate hike on June 16. The central bank hiked interest rates by another 75 basis points bringing its benchmark fund’s rate to a range between 1.5% and 1.75%, the highest it has been since 1994. Wells Fargo highlighted that according to the central bank’s data, at the end of 2021 roughly 24.3% of U.S. household assets were in equities. Wells Fargo estimates U.S. household assets to decline by $6 trillion in the second quarter of 2022, due to sell-offs. Chris Harvey, a senior analyst at Wells Fargo, said that once the economy is in a recession, the Fed is likely to ease its tight monetary policies. Harvey added:
“We are not looking for a level, but rather an event (or events) to stabilize equities. Stocks likely will find a bottom when the market believes Fed hikes will begin to decelerate. To get there, we will need to see jobless claims numbers continue to rise, suggesting supply/demand is better aligning and breakevens continue to decline (implying inflation expectations are abating). We believe this is still off in the distance.”
Wells Fargo is not the only bank that has been predicting a recession. On June 21, Goldman Sachs reported that it sees the probability of the U.S. economy entering a recession now as double that of its previous forecasts. Earlier this year, the bank estimated that the chance of a recession in the 12 months to follow was 15%. The bank raised its estimates to now 30%, citing two primary reasons for it. Firstly, Goldman Sachs cut its GDP growth expectations for the rest of 2022 and into 2023, following the central bank’s recent tightening. Secondly, Goldman Sachs expects the Fed to continue quantitative tightening in the months to come as inflation pressures persist.
According to major banks in the U.S., a recession is imminent, as inflationary pressures loom over the economy and Fed tightening continues. Investors are exploring stock options to recession-proof their portfolios. Wells Fargo released a list of 55 stocks that it believes can manage to hold up strong against a recession. Some prominent mentions in the list were Verizon Communications Inc. (NYSE:VZ), PepsiCo, Inc. (NYSE:PEP), 3M Company (NYSE:MMM), and International Business Machines Corporation (NYSE:IBM).
Our Methodology
To compile this list of 10 best recession stocks to buy according to Wells Fargo, we reviewed the bank’s recession stock portfolio that it released on June 14, 2022. We picked stocks from sectors that typically possess the ability to pass on higher costs to consumers, therefore maintaining profit margins. Such sectors include consumer staples, energy, and utilities among others. We narrowed down our selection to stocks that had consensus positive analyst sentiment and investor sentiment. The stocks are ranked in increasing order of hedge fund holders.
Best Recession Stocks to Buy According to Wells Fargo
10. Realty Income Corporation (NYSE:O)
Number of Hedge Fund Holders: 22
Realty Income Corporation (NYSE:O) was mentioned among Wells Fargo’s real estate stock picks for a recession. Realty Income Corporation (NYSE:O) is an attractive stock option for a recession because of the company’s successful track record of consistent monthly dividends. As of this June, Realty Income Corporation (NYSE:O) has consistently awarded its stakeholders with 624 monthly dividends since it went public in October 1994.
On June 16, Realty Income Corporation (NYSE:O) announced that the company has filed to sell $120 million worth of shares of its common stock. With this move, Realty Income Corporation (NYSE:O) expects to settle its debt and also allocate capital to expand its portfolio of properties.
On May 4, Realty Income Corporation (NYSE:O) announced earnings for the fiscal first quarter of 2022. The company reported an FFO of $1.01 and exceeded expectations by $0.04. Moreover, the company’s revenue was valued at $807.34 million, up 93.29% year over year, and outperformed Wall Street consensus by $58.66 million.
Insider Monkey found 22 hedge funds long Realty Income Corporation (NYSE:O) at the end of Q1 2022. These funds held collective stakes worth $284.88 million in the company. Of these, Glendon Capital Management was the most prominent investor in the company, owning over 1.85 million shares which amount to a stake of $128.68 million.
In addition to Verizon Communications Inc. (NYSE:VZ), PepsiCo, Inc. (NYSE:PEP), 3M Company (NYSE:MMM), and International Business Machines Corporation (NYSE:IBM), Realty Income Corporation (NYSE:O) is also a recession-proof stock to invest in according to Wells Fargo.
9. DTE Energy Company (NYSE:DTE)
Number of Hedge Fund Holders: 28
On April 28, DTE Energy Company (NYSE:DTE) released earnings for the first quarter of fiscal year 2022. The company reported earnings per share of $2.31 and exceeded expectations by $0.23. The company’s revenue for the quarter came in at $4.58 billion, up 21.15% year over year, and ahead of expectations by $1.04 billion. DTE Energy Company (NYSE:DTE) was among Wells Fargo’s top utility stock picks for a recession.
As of June 22, DTE Energy Company (NYSE:DTE) has a forward dividend yield of 3.06% and has gained 3.71% over the past twelve months. On May 23, Citi analyst Ryan Levine raised his price target on DTE Energy Company (NYSE:DTE) to $146 from $134 and maintained a Buy rating on the shares.
At the close of Q1 2022, 28 hedge funds held stakes in DTE Energy Company (NYSE:DTE) worth $482.27 million. Of these, Millennium Management was the most prominent shareholder in the company with stakes worth $139.73 million, up 28% from the fund’s Q4 2021 stakes.
DTE Energy Company (NYSE:DTE) is a top recession stock to buy according to Wells Fargo. Other stocks that made it to the bank’s recession stock portfolio were Verizon Communications Inc. (NYSE:VZ), PepsiCo, Inc. (NYSE:PEP), 3M Company (NYSE:MMM), and International Business Machines Corporation (NYSE:IBM).
8. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Holders: 43
Wells Fargo named Marathon Petroleum Corporation (NYSE:MPC) among its top energy stock picks for a recession. On June 14, Wells Fargo analyst Roger Read raised his price target on Marathon Petroleum Corporation (NYSE:MPC) to $129 from $117 and reiterated an Overweight rating, equivalent to Buy, on the shares.
Analysts other than those at Wells Fargo are also bullish on Marathon Petroleum Corporation (NYSE:MPC). On June 13, BMO Capital analyst Phillip Jungwirth initiated coverage of Marathon Petroleum Corporation (NYSE:MPC) with an Outperform rating and a $135 price target.
Other reasons why Marathon Petroleum Corporation (NYSE:MPC) should be on investors’ watchlists for a recession right now are that the company is currently trading at a discount and is also offering a strong dividend yield. As of June 22, Marathon Petroleum Corporation (NYSE:MPC) has a forward PE ratio of 6.82, a dividend yield of 2.66%, and has returned 48.94% to investors over the past twelve months.
At the end of Q1 2022, 43 hedge funds disclosed ownership of stakes in Marathon Petroleum Corporation (NYSE:MPC). These funds held collective stakes worth $2.51 billion in the company, up from $2.22 billion a quarter ago when 41 hedge funds held stakes in the company. The hedge fund sentiment for the stock is positive.
As of March 31, Elliott Management owns over 11 million shares of Marathon Petroleum Corporation (NYSE:MPC), which makes it the top shareholder in the company with stakes worth $946.05 million.
Here is what Clark Street Value had to say about Marathon Petroleum Corporation (NYSE:MPC) in its fourth-quarter 2021 investor letter:
“During the worst of covid, I bought some LEAPs on Marathon Petroleum (MPC) as a proxy for Par Pacific (PARR) since long dated options weren’t available on the later. Those MPC calls expire next month and I’ll take profits, with PARR I’ve reduced my position throughout the year and might sell the rest early next year, I’ve owned it for 6-7 years and it has gone nowhere, they haven’t touched the NOLs, just a difficult business that I probably don’t understand as well as I should.”
7. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 50
Colgate-Palmolive Company (NYSE:CL) was ranked among Wells Fargo’s consumer staples picks for a recession. The company is a dividend payer, a key feature that reassures investors of a stable income. On June 9, Colgate-Palmolive Company (NYSE:CL) declared a quarterly cash dividend of $0.47 per share, in line with the company’s prior dividend. The dividend is payable on August 15 to investors of record at the close of business on July 21.
On June 17, Argus analyst Christopher Graja reiterated his $90 price target and Buy rating on Colgate-Palmolive Company (NYSE:CL). Graja noted that the consumer staples company is dedicated to offsetting inflation and staying on track to achieve its long-term financial milestones while focusing on innovative and premium products which will allow Colgate-Palmolive Company (NYSE:CL) to pass on high costs to consumers.
As of June 22, Colgate-Palmolive Company (NYSE:CL) has a forward dividend yield of 2.54% and the company has been growing its dividends for the past 21 years, with a 5-year dividend CAGR of 3.00%.
At the end of the first quarter of 2022, 50 hedge funds were bullish on Colgate-Palmolive Company (NYSE:CL). These funds held collective stakes worth $2.59 billion in the company, up from $2.06 billion in the preceding quarter with 48 positions. The hedge fund sentiment for the stock is positive.
As of March 31, First Eagle Investment Management is the top shareholder in Colgate-Palmolive Company (NYSE:CL). The fund’s stakes in the company are valued at $856.63 million, which covers 2.09% of its investment portfolio.
6. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
Analysts are bullish on Chevron Corporation (NYSE:CVX) and the stock was also among Wells Fargo’s top energy stock picks for a recession. As of June 9, Credit Suisse analyst Manav Gupta has a $202 price target and an Outperform rating on Chevron Corporation (NYSE:CVX). Moreover, as of June 22, the stock has returned 45.29% to investors over the past twelve months, which gives all the more reason for potential investors to add it to their watch lists.
Other salient features that made us choose Chevron Corporation (NYSE:CVX) from Wells Fargo’s picks were the stock’s price-to-earnings ratio and dividend yield. As of June 22, Chevron Corporation (NYSE:CVX) has a forward PE ratio of 8.69 and a dividend yield of 3.83%. The company has been growing its dividends for the past six years and has a 5-year dividend CAGR of 5.07%.
At the end of Q1 2022, 53 hedge funds held stakes in Chevron Corporation (NYSE:CVX) worth $27.99 billion. Comparing this to Q4 2021, 53 hedge funds were long Chevron Corporation (NYSE:CVX) with stakes worth $6.50 billion.
As of March 31, Berkshire Hathaway owns the most shares of Chevron Corporation (NYSE:CVX), which makes it the most prominent hedge fund having stakes in the company. Berkshire Hathaway’s stakes in Chevron Corporation (NYSE:CVX) were valued at $25.91 billion at the end of Q1 2022.
Here is what ClearBridge Investments had to say about Chevron Corporation (NYSE:CVX) in its “Large Cap Value Strategy” first-quarter 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
Click to continue reading and see 5 Best Recession Stocks to Buy According to Wells Fargo.
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- 10 Best Inflation-Proof Stocks
Disclose. None. 10 Best Recession Stocks to Buy According to Wells Fargo is originally published on Insider Monkey.
