In this article, we discuss 10 safe stocks to buy during recessions. If you want to skip our detailed analysis of the current economic situation, go directly to the 5 Safe Stocks to Buy During Recessions.
Investors concerned about a recession this year have prompted many brokers, advisors, and fund managers to become far more cautious. Even though firms are maintaining strong profit forecasts, consumers and retailers are indicating early signs of spending cuts and limiting themselves to more basic necessities. The S&P 500 Index, the Dow 30 Index, and the NASDAQ Composite Index finished the last week in the green for the first time in the previous seven weeks. The S&P 500 Index came to touching distance to the bear market before recovering partially. The reason for such bearish sentiment was that the Federal Reserve is looking to increase the interest rate to combat high inflation. Meanwhile, the end to the conflict between Russia and Ukraine is nowhere in sight. A large portion of the inflation problem can be traced back to the unprecedented $3.9 trillion in fiscal stimulus put into the economy in 2020 and 2021, as well as the Federal Reserve’s monthly bond purchases of over a hundred billion dollars since Covid-19’s peak.
The US GDP growth has declined from 12.2% in Q2 2021 to 3.5% in the first quarter of 2022. When the US economy enters into a recession, the majority of companies lose their market value due to the economic downturn. According to CNN, during the 2008 recession, only 25 stocks in the S&P 500 Index generated positive returns for the year. It’s difficult for the regular investor to locate a safe haven during such an economic situation. Recessions are frequently followed by pure bear markets, with stock prices dropping by more than 20% and, in some cases, substantially more. The bond market is no longer a place of refuge, especially with the Fed raising interest rates fast. Equities and bonds are more risky than normal, and rising inflation means that even savings are losing value. It would be prudent to brace oneself for more bad economic news in the future.
With this context in mind, we have created a list of 10 safe stocks to buy during recessions, which includes companies with strong growth trajectories such as Walmart Inc. (NYSE:WMT), McDonald’s Corporation (NYSE:MCD), and Abbott Laboratories (NYSE:ABT).
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Our Methodology
Let’s begin our list of 10 safe stocks to buy during recessions. We have looked at the analyst ratings, hedge fund data, and business fundamentals for each company. Over 900 elite hedge funds were tracked by Insider Monkey at the end of Q1 2022 to gauge the hedge fund sentiment concerning each stock.
10 Safe Stocks to Buy During Recessions
10. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 72
The Procter & Gamble Company (NYSE:PG) is a Cincinnati, Ohio-based consumer goods company involved in the manufacturing and distribution of a broad range of personal care and hygiene products.
The Q3 FY22 results revealed that The Procter & Gamble Company (NYSE:PG) experienced a 10% organic growth in sales. If we dissect these numbers further, we find out that sales volume also increased by 3%. This is a positive development for The Procter & Gamble Company (NYSE:PG) because it reflects that customers did not cut down on volumes, despite an increase in prices. Although its European competitor, Unilever, reported a bigger rise in organic sales of 12%, it experienced a 1% decline in volume, reflecting that consumers either cut down on spending or switched to other brands.
Moreover, The Procter & Gamble Company (NYSE:PG) has no exposure to the food segment, unlike its competitor Unilever. This works in the company’s favor as due to the Russia-Ukraine conflict, food companies have come under pressure because of a significant spike in commodity prices.
The Procter & Gamble Company (NYSE:PG) was held by 72 hedge funds at the end of Q1 2022.
9. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 64
The Coca-Cola Company (NYSE:KO) is an Atlanta, Georgia-based non-alcoholic beverage company with a diversified portfolio of 500 brands present in almost 200 countries across the globe.
On May 9, Bank of America added The Coca-Cola Company (NYSE:KO) to the “US 1 list”, which comprises of best investment ideas extracted from the stocks that have a Buy call by analysts at the financial services and investment firm. Although The Coca-Cola Company (NYSE:KO) reported a decline in revenue because of exiting the Russian market and the COVID-19 related lockdowns in China, Q1 2022 numbers were positive for the company. The Coca-Cola Company’s (NYSE:KO) operating income, net income, EPS, and subsequently, the share price reached an all-time high.
The total addressable market (TAM) for non-alcoholic beverages stands at $833.1 billion and is expected to compound annually by 5.6% until the end of this decade. The Coca-Cola Company (NYSE:KO) also has products like Coca-Cola Zero in its portfolio, which is gaining momentum as consumers’ preference is changing towards no or low sugar offerings.
The Coca-Cola Company (NYSE:KO) was mentioned in the Q4 2021 investor letter of ClearBridge Investments. Here’s what the firm said:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (Coca-Cola). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
As of Q1 2022, The Coca-Cola Company (NYSE:KO) was held by 64 hedge funds.
8. Constellation Brands, Inc. (NYSE:STZ)
Number of Hedge Fund Holders: 41
Constellation Brands, Inc. (NYSE:STZ) is a New York-based producer of beer, wine, and other forms of alcoholic beverages. In terms of sales, the company is the largest beer-import corporation in the US.
Constellation Brands, Inc. (NYSE:STZ) can handle the cost pressures due to its sector-leading margins. The young demographic consuming Constellation Brands’ products is also a positive for the company as the growing Hispanic community is the biggest consumer of the brand. Constellation Brands is the custodian of Modelo and Corona, two of the leading beer brands in the US.
In Q1 2022, Constellation Brands, Inc. (NYSE:STZ) posted an EPS Normalized Actual of $2.37, beating the analysts’ estimates by $0.25. Moreover, the company surpassed the revenue estimates by $85.6 million.
Amongst the 41 hedge funds holding a stake in Constellation Brands, Inc. (NYSE:STZ), the biggest stake was held by Harris Associates, with a value of $771.78 million as of March 31.
7. Synopsys, Inc. (NASDAQ:SNPS)
Number of Hedge Fund Holders: 43
Synopsys, Inc. (NASDAQ:SNPS) is a Mountain View, California-based electronic design automation platform provider that engineers can use to design and test semiconductor chips and other software applications. The semiconductor industry is secular as the demand for chip testing and design services is constant across all economic cycles. This is evident by the fact that Charles Shi at Needham increased the price target on Synopsys, Inc. (NASDAQ:SNPS) from $370 to $380 and reiterated a Buy rating in a note issued to investors on May 19.
The analyst shared that although Synopsys, Inc. (NASDAQ:SNPS) stock price has slipped by 20% since January, it seems that it has found its bottom and will recover in due course. Shi added that in a bear market, there are very few options to invest in, but Electronic Design Automation Stocks like Synopsys, Inc. (NASDAQ:SNPS) present an attractive opportunity.
Carillon Tower Advisers shared its insights on Synopsys, Inc. (NASDAQ:SNPS) in its Q4 2021 investor letter. Here’s what it said:
“Synopsys is a semiconductor software company that supplies electronic design automation solutions to the global electronics market. The firm’s shares outperformed in the quarter after management outlined a longer-term vision at the company’s analyst day and suggested a higher level of growth going forward than it has achieved in the previous few years. Synopsys is becoming a key supplier of leading-edge semiconductor designs that are getting increasingly more difficult for chip companies to build on their own. On top of accelerating topline growth, the company also posts healthy profits and robust cash flow generation.”
As of Q1 2022, 43 hedge funds held a stake in Synopsys, Inc. (NASDAQ:SNPS).
6. NextEra Energy Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 64
NextEra Energy Inc. (NYSE:NEE) is a Juno Beach, Florida-based electric power and energy infrastructure company that produces, transmits, and distributes electricity. The company is leading the clean-energy initiative by employing renewable energy for electricity generation.
In a note issued to investors on April 25, Nicholas Campanella at Credit Suisse assumed coverage of NextEra Energy Inc. (NYSE:NEE) with an Outperform rating and a price target of $87. The target price assumes a potential upside of 12.3% from the previous closing price. The analyst thinks that NextEra Energy Inc. (NYSE:NEE) is a leading utility and renewable energy producer that has a strong following in the renewable energy supply chain debate. Campanella stated that despite the supply chain-related challenges in the short term, NextEra Energy Inc. (NYSE:NEE) is in a stable position, compared to its competitors, due to the company’s scale and size.
At the end of Q1 2022, 64 hedge funds held a stake in NextEra Energy Inc. (NYSE:NEE), up from 55 in the preceding quarter.
In addition to NextEra Energy Inc. (NYSE:NEE), stocks such as Walmart Inc. (NYSE:WMT), McDonald’s Corporation (NYSE:MCD), and Abbott Laboratories (NYSE:ABT) are amongst the 10 safe stocks to buy during recessions.
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Disclose. None. 10 Safe Stocks to Buy During Recessions is originally published on Insider Monkey.
