14 Best Stocks To Buy Before the 2023 Recession

Published on January 7, 2023 at 5:43 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss 14 best stocks to buy before the 2023 recession. If you want to see more stocks in this selection, check out 5 Best Stocks To Buy Before the 2023 Recession.

Investment advisory Barclays forecasts that 2023 will be one of the worst years for the global economy in forty years. Ned Davis Research put the chances of a crushing global downturn at 65%. Similarly, Fidelity International thinks a hard landing seems inevitable. As the Federal Reserve sticks with its most aggressive fiscal policy in decades, Wall Street consensus is that a mild recession will strike globally even if inflation has peaked.

Market experts think there is a 7-in-10 probability that the US economy will slip into a recession in 2023, and they are trimming demand expectations and slashing inflation forecasts in light of tremendous interest rate hikes by the Federal Reserve. The median estimates suggest that gross domestic product will average a meagre 0.3% in 2023, including an annualized 0.7% drop in the second quarter and flat data in the first and third quarters. Consumer spending, which accounts for about two-thirds of the GDP, is expected to grow just barely in the middle half of 2023.

Bill Adams, chief economist at Comerica Bank, told Bloomberg on December 20:

“The US economy is facing big headwinds from surging interest rates, high inflation, the end of fiscal stimulus, and weak export markets abroad. Businesses have turned cautious about adding to inventories and hiring, and will likely delay construction and other capex plans with credit more expensive and order books shrinking.”

During periods of recession and general market volatility, individuals tend to pile into defensive assets like gold (see 13 Best Gold Stocks To Buy For Recession). Similarly, investors prefer to solidify their portfolios with recession-proof equities (see 10 Best Recession Proof Stocks To Invest In). Some of the best recession stocks to buy for 2023 include Costco Wholesale Corporation (NASDAQ:COST), Bank of America Corporation (NYSE:BAC), and UnitedHealth Group Incorporated (NYSE:UNH).

Our Methodology

We scanned Insider Monkey’s database of 920 hedge funds and picked the top 14 stocks that are recession proof. These stocks belong to defensive sectors like alcohol, consumer staples, healthcare, and finance. Many of these companies have solid dividend histories and enjoy a stable market position. The list is arranged according to the number of hedge fund holders in each firm.

Photo by NeONBRAND on Unsplash

Best Stocks To Buy Before the 2023 Recession

14. Diageo plc (NYSE:DEO)

Number of Hedge Fund Holders: 20

Diageo plc (NYSE:DEO) is a London-based company that produces, markets, and sells alcoholic beverages under the Johnnie Walker, Guinness, Tanqueray, Baileys, Smirnoff, Captain Morgan, Crown Royal, Don Julio, Ciroc, Buchanan’s, Casamigos, J&B, and Ketel One brands. Alcohol demand surges during recessions, making Diageo plc (NYSE:DEO) one of the best stocks to buy before a recession hits in 2023. Consumer demand for Diageo products remains resilient worldwide. Although earnings had been fluctuant in the past, they always rebounded well, and will potentially be solid in the coming economic downturn.

On January 4, Credit Suisse analyst Sanjeet Aujla raised the price target on Diageo plc (NYSE:DEO) to 4,500 GBp from 4,400 GBp and maintained an Outperform rating on the shares.

According to Insider Monkey’s third quarter database, 20 hedge funds held stakes worth $527.4 million in Diageo plc (NYSE:DEO), compared to 22 funds in the prior quarter worth $887.3 million. Tom Gayner’s Markel Gayner Asset Management is the biggest position holder in the company, with 1.35 million shares worth $229.2 million.

Like Costco Wholesale Corporation (NASDAQ:COST), Bank of America Corporation (NYSE:BAC), and UnitedHealth Group Incorporated (NYSE:UNH), Diageo plc (NYSE:DEO) is one of the best recession stocks to invest in.

Here is what ClearBridge Aggressive Growth Strategy has to say about Diageo plc (NYSE:DEO) in its Q2 2022 investor letter:

“Diageo is a leading global distiller and brewer which addresses the large ($500 billion-plus) and fragmented market for spirits. With its portfolio of premium products, we see Diageo as a steady compounder poised for sustained, above industry growth. The company’s margins remain below pre-COVID levels in a number of geographies and should continue to recover as channels reopen, though we also see opportunities for consistent margin expansion beyond this period of rebound. The spirits category is not immune to weaker consumer spending nor inflation; however the majority of Diageo’s profits are from the U.S. market, which has historically been more resilient. Additionally, the company has a number of margin levers to help combat rising input costs.”

13. Church & Dwight Co., Inc. (NYSE:CHD)

Number of Hedge Fund Holders: 40

Church & Dwight Co., Inc. (NYSE:CHD) is a New Jersey-based company that develops, manufactures, and markets household, personal care, and specialty products. It operates through three segments – Consumer Domestic, Consumer International, and Specialty Products Division. Church & Dwight Co., Inc. (NYSE:CHD) is one of the best recession-proof stocks to invest in this year. The company has a history of 27 years of consecutive dividend increases, making it a reliable income stock to pick up for the volatile market environment.

On December 6, Deutsche Bank analyst Steve Powers raised the firm’s price target on Church & Dwight Co., Inc. (NYSE:CHD) to $90 from $85 and maintained a Buy rating on the shares.

According to Insider Monkey’s Q3 data, Church & Dwight Co., Inc. (NYSE:CHD) was part of 40 hedge fund portfolios, compared to 32 in the prior quarter. Terry Smith’s Fundsmith LLP is the biggest stakeholder of the company, with 8.45 million shares worth $604.2 million.

Renaissance Investment made the following comment about Church & Dwight Co., Inc. (NYSE:CHD) in its Q3 2022 investor letter:

“On the negative side, Church & Dwight Co., Inc. (NYSE:CHD) declined 22.7% after reporting first quarter operating results that were below expectations. The company also lowered guidance on macroeconomic concerns, with management citing softness across their product portfolio, especially for their discretionary categories, as retailers work on reducing inventory levels.”

12. Ross Stores, Inc. (NASDAQ:ROST)

Number of Hedge Fund Holders: 43

Ross Stores, Inc. (NASDAQ:ROST) is a California-based company that sells discount retail apparel and home fashion accessories under the Ross Dress for Less and dd’s DISCOUNTS brand names. It is one of the best stocks to buy for the 2023 recession, as customers tend to gravitate towards off-price stores during difficult times. As of December 19, Ross Stores, Inc. (NASDAQ:ROST) continues to be seen as a retail sector winner amid the holiday season and continuing inflationary headwinds.

On November 21, Barclays analyst Adrienne Yih raised the price target on Ross Stores, Inc. (NASDAQ:ROST) to $127 from $98 and reiterated an Overweight rating on the shares. The company’s Q3 earnings report “was the second proof point that the balance of power has shifted in Off-Price’s favor,” the analyst told investors in a research note.

According to Insider Monkey’s database, 43 hedge funds were bullish on Ross Stores, Inc. (NASDAQ:ROST) at the end of Q3 2022, compared to 46 funds in the prior quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the biggest position holder in the company, with 3.95 million shares worth $333 million.

Carillon Tower Advisers made the following comment about Ross Stores, Inc. (NASDAQ:ROST) in its Q3 2022 investor letter:

“Ross Stores, Inc. (NASDAQ:ROST) topped the contribution list as this discount clothing and accessories retailer rebounded from oversold conditions after reporting a weak quarter. Ross continues to follow its deep discount strategy, offering consumers bargains on clothing as it executes a “packaway” inventory strategy, scooping up inventory when its buyers perceive bargains in the marketplace, then passing savings on to customers with low-cost retail locations.”

11. O’Reilly Automotive, Inc. (NASDAQ:ORLY)

Number of Hedge Fund Holders: 48

O’Reilly Automotive, Inc. (NASDAQ:ORLY) operates as a retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. For full-year 2022, the company expects revenue to be between $14.1 billion and $14.3 billion, versus a consensus of $14.16 billion and GAAP earnings per share are expected to be in the range of $32.35 to $32.85, compared to the prior view of $31.25 to $31.75 and a consensus of $31.86. During recessions, customers tend to fix their old vehicles instead of purchasing new ones, which skyrockets demand for companies like O’Reilly Automotive, Inc. (NASDAQ:ORLY).

On January 5, Wells Fargo analyst Zachary Fadem raised the price target on O’Reilly Automotive, Inc. (NASDAQ:ORLY) to $925 from $850 and maintained an Overweight rating on the shares. Despite industry-leading comps and positive share gains, the analyst believes a case can be made that O’Reilly Automotive, Inc. (NASDAQ:ORLY) under-earned in 2022 and in 2023, he sees the benefits of a solid, needs-based category, little evidence of pricing roll back, and potential tailwinds from share gains and improving margins.

According to Insider Monkey’s third quarter database, 48 hedge funds were bullish on O’Reilly Automotive, Inc. (NASDAQ:ORLY), compared to 41 funds in the last quarter. Charles Akre’s Akre Capital Management is the largest position holder in the company, with 1.47 million shares worth $1 billion.

Aristotle Atlantic made the following comment about O’Reilly Automotive, Inc. (NASDAQ:ORLY) in its Q3 2022 investor letter:

“O’Reilly Automotive, Inc. (NASDAQ:ORLY) outperformed the Consumer Discretionary sector because its business is expected to be more resilient in an economic downturn. The company’s second quarter earnings were slightly below consensus estimates; however, the outlook for the rest of the year showed steady growth despite difficult comparisons with the second half of 2021. O’Reilly Automotive continues to grow its store base and has recently announced an expansion into Mexico. The company operates in an industry where competition has historically remained rational through the economic cycle.”

10. McDonald’s Corporation (NYSE:MCD)

Number of Hedge Fund Holders: 53

McDonald’s Corporation (NYSE:MCD) is one of the best stocks to buy for the 2023 recession, as demand for cheap food surges during periods of economic volatility and high unemployment. On December 15, McDonald’s Corporation (NYSE:MCD) and five of its suppliers signed a deal to purchase almost 190 megawatts of power from Blue Jay Solar Farm. The solar energy will power all the warehouses, distribution centers, and other elements of McDonald’s Corporation (NYSE:MCD)’s logistical supply chain for its U.S. restaurants. The company aims to reduce greenhouse emissions by 36% by 2030 and become net zero by 2050.

Barclays analyst Jeffrey Bernstein on January 5 raised the price target on McDonald’s Corporation (NYSE:MCD)’s to $310 from $295 and maintained an Overweight rating on the shares. To begin 2023, the analyst expects discretionary restaurants to outperform, with sales strong, pricing outsized, and inflation easing.

According to Insider Monkey’s Q3 data, McDonald’s Corporation (NYSE:MCD) was part of 53 hedge fund portfolios, compared to 50 in the prior quarter. Ray Dalio’s Bridgewater Associates is the largest stakeholder of the company, with more than 2 million shares worth $487.7 million.

9. The Coca-Cola Company (NYSE:KO)

Number of Hedge Fund Holders: 59

The Coca-Cola Company (NYSE:KO) is one of the best stock picks for a recession-safe portfolio. The Coca-Cola Company (NYSE:KO) will announce its 61st consecutive dividend increase on February 16th, 2023, making it a reliable dividend king to invest in. Income stocks are a good hedge against market volatility, as dividends help a portfolio that suffers from share price losses. The company has increased its exposure to alcoholic beverages over the last two years as well.

On December 20, Atlantic Equities analyst Edward Lewis said he expects a more challenging backdrop for the global consumer in FY23 as input costs remain high and companies will be looking to raise prices in some cases. In this context, his top names in beverages include The Coca-Cola Company (NYSE:KO), where he sees category momentum, continuous investment, and solid execution driving growth. The analyst has an Overweight rating on The Coca-Cola Company (NYSE:KO) shares with a $69 price target.

According to Insider Monkey’s data, 59 hedge funds were bullish on The Coca-Cola Company (NYSE:KO) at the end of Q3 2022, compared to 60 funds in the last quarter. Warren Buffett’s Berkshire Hathaway held the largest stake in the company, with 400 million shares worth $22.40 billion.

In its Q2 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and The Coca-Cola Company (NYSE:KO) was one of them. Here is what the fund 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 (The Coca-Cola Company (NYSE:KO)). 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.”

8. Abbott Laboratories (NYSE:ABT)

Number of Hedge Fund Holders: 62

Abbott Laboratories (NYSE:ABT) develops, manufactures, and sells healthcare products worldwide. The company operates through four segments – Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices. Healthcare is a defensive market sector, which means firms like Abbott Laboratories (NYSE:ABT) perform well despite a recession backdrop.

On December 9, Abbott Laboratories (NYSE:ABT) declared a $0.51 per share quarterly dividend, an 8.5% increase from its prior dividend of $0.47. The dividend is distributable on February 15, 2023 to shareholders of record on January 13. Abbott Laboratories (NYSE:ABT) has offered 396 consecutive quarterly dividends since 1924 and has raised the dividend payouts for 50 consecutive years, making it a solid dividend king.

Barclays analyst Matt Miksic on January 4 raised the price target on Abbott Laboratories (NYSE:ABT) to $122 from $114 and maintained an Overweight rating on the shares. The macro backdrop remains constrained for medical supplies and devices, but the analyst is “generally constructive” on the sector, seeing improving volume trends, solid labor challenges, and “potentially stabilizing” supply chain and inflationary cost trends.

According to Insider Monkey’s data, Abbott Laboratories (NYSE:ABT) was part of 62 hedge fund portfolios at the end of the third quarter of 2022, compared to 61 in the preceding quarter. Ken Fisher’s Fisher Asset Management is the largest position holder in the company, with 9.12 million shares worth $883.2 million.

Here is what Stewart Asset Management has to say about Abbott Laboratories (NYSE:ABT) in its Q3 2022 investor letter:

“We also need to point out one global consequence of the rapid rise in interest rates: an irrepressibly strong dollar. This hurts the reported earnings of U.S. companies who sell their goods and services overseas. Foreign currency earnings translate into fewer dollars and thus lower earnings. Most of the companies in your portfolios gain a notable amount of earnings from their international operations. While the strength or weakness of a currency doesn’t change the quality of a business or its longer-term earnings power, it can change the reported earnings of a company over short periods of time. It is difficult to forecast this effect accurately because many of our companies manufacture where they sell, which to some extent dulls the sharp negative effect of a surging dollar. Abbott (NYSE:ABT), among others, is a good example.”

7. Walmart Inc. (NYSE:WMT)

Number of Hedge Fund Holders: 68

Walmart Inc. (NYSE:WMT) is one of the best stocks for a recession-proof portfolio given its defensive nature. On January 5, Walmart Inc. (NYSE:WMT) announced the success of its drone delivery program in 2022. The company completed more than 6,000 deliveries via drone during the year from its 36 drone delivery hubs across seven states. As of the end of 2022, locations in Arizona, Arkansas, Florida, North Carolina, Texas, Utah, and Virginia provided drone delivery.

Credit Suisse analyst Karen Short on December 19 assumed coverage of Walmart Inc. (NYSE:WMT) with an Outperform rating with a price target of $170, up from $160. Walmart Inc. (NYSE:WMT) has been securing “meaningful” market share since early 2021 and the analyst sees it as “a well-positioned defensive name in an uncertain macro backdrop”.

According to Insider Monkey’s third quarter database, 68 hedge funds were long Walmart Inc. (NYSE:WMT), compared to 67 funds in the earlier quarter. The collective stakes held by elite hedge funds in Q3 2022 increased to $4 billion from $3.78 billion in Q2 2022.

In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Walmart Inc. (NYSE:WMT) was one of them. Here is what the fund said:

“The pandemic has created challenges for businesses large and small; one major challenge for large essential retailers such as ClearBridge holdings Home Depot, Walmart Inc. (NYSE:WMT) and Costco have been ensuring adequate staffing to meet demand under trying conditions. All three instituted enhanced pay practices during the pandemic, with raises, unplanned bonuses and other benefits helping compensate employees for their efforts in a difficult environment. In September 2020 Walmart raised wages for 165,000 employees, including a number of entry positions to $15 an hour. It followed this in February with a raise for 425,000 workers that moved its average pay above $15 an hour.”

6. The Procter & Gamble Company (NYSE:PG)

Number of Hedge Fund Holders: 69

The Procter & Gamble Company (NYSE:PG) is an American multinational company that provides branded consumer packaged goods worldwide. It operates through five segments – Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care. The Procter & Gamble Company (NYSE:PG) is a dividend king, with 67 years of consecutive dividend increases under its belt. The consumer staples sector was an obvious winner compared to primary indexes in 2022 as investors turned defensive, picking up stocks like The Procter & Gamble Company (NYSE:PG).

On December 6, Deutsche Bank analyst Steve Powers raised the firm’s price target on Procter & Gamble to $162 from $156 and kept a Buy rating on the shares.

According to Insider Monkey’s data, 69 hedge funds were bullish on The Procter & Gamble Company (NYSE:PG) at the end of September 2022, compared to 71 funds in the prior quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is a prominent stakeholder of the company, with 5.6 million shares worth $712 million.

In addition to Costco Wholesale Corporation (NASDAQ:COST), Bank of America Corporation (NYSE:BAC), and UnitedHealth Group Incorporated (NYSE:UNH), The Procter & Gamble Company (NYSE:PG) is one of the premier recession stocks to consider.

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