5 Best Counter Cyclical Stocks To Buy Now

In this article, we discuss 5 best counter cyclical stocks to buy now. If you want to see more stocks in this selection, check out 11 Best Counter Cyclical Stocks To Buy Now. 

5. PepsiCo, Inc. (NASDAQ:PEP)

Number of Hedge Fund Holders: 70

PepsiCo, Inc. (NASDAQ:PEP) is one of the best counter cyclical stocks to invest in. On February 1, PepsiCo, Inc. (NASDAQ:PEP) declared a quarterly dividend of $1.15 per share, in line with previous. The dividend is payable on March 31, to shareholders of record on March 3. The company has 51 consecutive years of dividend increases under its belt.

On March 20, Deutsche Bank analyst Steve Powers raised the firm’s price target on PepsiCo, Inc. (NASDAQ:PEP) to $188 from $186 and maintained a Hold rating on the shares. The analyst noted that there is a growing possibility of economic challenges for the consumer staples industry, which has increased the firm’s apprehension regarding the potential risks to the company’s future performance across much of its coverage.

According to Insider Monkey’s fourth quarter database, 70 hedge funds were long PepsiCo, Inc. (NASDAQ:PEP), compared to 72 funds in the earlier quarter. Terry Smith’s Fundsmith LLP is the largest stakeholder of the company, with 6.65 million shares worth $1.20 billion. 

Here is what Lindsell Train has to say about PepsiCo, Inc. (NYSE:PEP) in its Q3 2022 investor letter:

“At this point, it may help to give a further example of these self-reinforcing moats to illustrate the idea, drawing from the consumer franchises side of our portfolio. In our view, strong consumer brands can similarly exhibit Lindycompatible anti-ageing properties. Consider that the longer a company invests in its brands through advertising and R&D, the stronger and more resonant they may get. When successful, a self-sustaining feedback loop is established, whereby it becomes ever harder to recreate a heritage-rich brand from scratch, raising barriers to entry, and proportionately increasing its likely lifespan. There are plenty of long-lived portfolio franchises I could reference here, but I’ve gone with PepsiCo (NYSE:PEP); partly because we have good time-series stats on it (beware data bias!) but also, as I hope will become evident, because Pepsi over its 129 years has succeeded in creating some wonderfully deep moats.

With Pepsi Cola you get the flagship soft drinks brand, which is both global and generational, but you also get the Frito-Lay salty snacks portfolio assembled alongside it, claiming nearly 40% of the global market. That’s ten-times greater than the nearest competitor and likely higher than the next 65 competitors combined. These are exceptionally strong global bands with market shares to match; the long-term empirical result being Pepsi’s dividend record which over the past 66 years (as far back as we’ve been able to go) has compounded at an annualized rate of 10%. Pepsi is no ‘in at the ground floor’ start-up today, but it wasn’t six decades ago either. Early growth investor Philip Fisher put it well when in 1958 (two years into Pepsi’s current winning streak) he wrote of “companies which in spite of outstanding prospects of major further growth are so financially strong, with roots going so deep into the economic soil, that they qualify under the general classification of ‘institutional stocks’”. PepsiCo fits this description well…” (Click here to see the full text)

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

Number of Hedge Fund Holders: 74

The Procter & Gamble Company (NYSE:PG) is an American multinational packaged consumer products company. It is one of the top counter cyclical stocks to monitor. On March 20, The Procter & Gamble Company (NYSE:PG)’s price target was reduced by Deutsche Bank from $162 to $156, but the firm still assigned a Buy rating to the shares. According to Deutsche Bank, there is a growing possibility of economic difficulties affecting the consumer staples industry, which raises concerns about the future performance of many companies they cover. 

According to Insider Monkey’s fourth quarter database, 74 hedge funds were bullish on The Procter & Gamble Company (NYSE:PG), compared to 69 funds in the last quarter. Ray Dalio’s Bridgewater Associates held the largest stake in the company, comprising approximately 5 million shares worth $757 million.  

Rowan Street Capital made the following comment about The Procter & Gamble Company (NYSE:PG) in its Q4 2022 investor letter:

“Let’s look at The Procter & Gamble Company (NYSE:PG). Dividend yield is 2.4%. Earnings are forecasted to grow at 5.9%, and its current earnings multiple is at 25x. Now, lets say over the next 3-5 years the market loses interest in the “safe”, mature companies that grow at anemic rates and gets an appetite for growth again. It’s very unlikely that Mr. Market will be paying 25x for 5.9% earnings growth. Lets assume that multiple declines to the market average of 18x — that would be ~6.9% drag per year on the total expected return over next 3-5 years. If we get 2.4% (dividend) + 5.9% (earnings growth) – 6.9% (decrease in earnings multiple) = 1.4% (annual return we can expect on average from this stock).”

3. Eli Lilly and Company (NYSE:LLY)

Number of Hedge Fund Holders: 76

Eli Lilly and Company (NYSE:LLY) discovers, develops, and markets human pharmaceuticals worldwide. Apart from COVID-19 antibodies, Eli Lilly and Company (NYSE:LLY)’s revenue in Q4 2022 increased 5%, or 10% on a constant currency basis, supported by volume growth of primary growth products, partially offset by lower Alimta revenue. Excluding COVID-19 antibodies, total worldwide volume in Q4 2022 increased 13%. It is one of the top counter cyclical stocks to invest in. 

On March 13, Wells Fargo upgraded Eli Lilly and Company (NYSE:LLY) to Overweight from Equal Weight with a price target of $375, up from $360. Despite recent weakness in the shares, the firm believes that Eli Lilly and Company (NYSE:LLY)’s fundamentals have remained the same, making it a good buying opportunity. The risk/reward into the donanemab Alzheimer’s trial may be in favor of the upside, as per the firm. Additionally, Wells Fargo noted that the stock is down 18% from its peak without any fundamental change, which makes it a good opportunity to invest in the highest growth stock in the large pharma sector.

According to Insider Monkey’s fourth quarter database, 76 hedge funds were long Eli Lilly and Company (NYSE:LLY), compared to 75 funds in the prior quarter. Rajiv Jain’s GQG Partners is the biggest position holder in the company, with 1.6 million shares worth $602.80 million. 

Baron Funds made the following comment about Eli Lilly and Company (NYSE:LLY) in its Q4 2022 investor letter:

“Eli Lilly and Company (NYSE:LLY) is a large-cap pharmaceutical company. Shares increased on investor optimism about Lilly’s new product pipeline, which includes Mounjaro for diabetes and obesity and Donanemab for Alzheimer’s disease. We continue to think Lilly has a healthy base business with limited near-term patent expirations, a strong pipeline, and potential for significant margin expansion, which should translate to strong revenue and earnings growth over at least the next five years.”

2. Johnson & Johnson (NYSE:JNJ)

Number of Hedge Fund Holders: 84

Johnson & Johnson (NYSE:JNJ) is an American multinational company that develops, manufactures, and markets various products in the healthcare field worldwide. Johnson & Johnson (NYSE:JNJ) anticipates its adjusted EPS outlook for FY2023 to fall within the range of $10.45 to $10.65. The consensus estimate for the same period is $10.33. The company also projects its operational sales for the entire year of 2023 to be in the range of $96.9 billion to $97.9 billion, whereas the consensus for the same period is $97.73 billion.

On March 1, Guggenheim initiated coverage of Johnson & Johnson (NYSE:JNJ) with a Neutral rating and a price target of $161. Although the firm agrees with Johnson & Johnson (NYSE:JNJ)’s decision to separate its Consumer Health business and sees signs of recovery in the MedTech segment, it would prefer more clarity on the outlook of the Pharma division. This is due to the upcoming patent expirations, including Stelara later in the year. The firm noted that their sales forecast is below management’s expectations of $60 billion in Pharma sales in 2025 and also lower than management’s projections for several pipeline assets with a peak annual sales potential of $1 billion or $5 billion.

According to Insider Monkey’s Q4 data, 84 hedge funds were bullish on Johnson & Johnson (NYSE:JNJ), compared to 85 funds in the last quarter. Ray Dalio’s Bridgewater Associates is a prominent stakeholder of the company, with 3.5 million shares worth $630.2 million. 

In its Q2 2022 investor letter, Mayar Capital, an asset management firm, highlighted a few stocks and Johnson & Johnson (NYSE:JNJ) was one of them. Here is what the fund said:

“Johnson & Johnson (NYSE:JNJ) is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.

Here’s how JNJ makes and spends a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics (…read more)

1. UnitedHealth Group Incorporated (NYSE:UNH)

Number of Hedge Fund Holders: 110

UnitedHealth Group Incorporated (NYSE:UNH) was incorporated in 1977 and is based in Minnetonka, Minnesota. It operates as a diversified health care company in the United States. UnitedHealth Group Incorporated (NYSE:UNH)’s full year 2022 revenues grew 13% year-over-year to $324.16 billion with double digit growth at both Optum and UnitedHealthcare, supported mainly by serving more people. The adjusted EPS for the fourth quarter of the year grew by 19.2% compared to the same period last year, reaching $5.34. Meanwhile, the GAAP EPS increased by 18.08% year-over-year to $5.03. It is one of the best counter cyclical stocks to watch. 

On January 24, Deutsche Bank analyst George Hill raised the firm’s price target on UnitedHealth Group Incorporated (NYSE:UNH) to $617 from $615 and maintained a Buy rating on the shares following the Q4 results. Despite uncertainties related to policy changes in Medicare and Medicaid, as well as economic pressure in the commercial sector, the analyst believes that UnitedHealth Group Incorporated (NYSE:UNH) is cautious in its guidance and has various strategies to deliver better-than-expected results.

According to Insider Monkey’s fourth quarter database, 110 hedge funds were bullish on UnitedHealth Group Incorporated (NYSE:UNH), and Boykin Curry’s Eagle Capital Management is a prominent stakeholder of the company, with 2.18 million shares worth $1.15 billion. 

Sequoia Fund made the following comment about UnitedHealth Group Incorporated (NYSE:UNH) in its Q4 2022 investor letter:

“UnitedHealth Group Incorporated (NYSE:UNH) was among Sequoia’s best performing stocks this year, thanks to typically strong financial results and increased appreciation for the business’ relative insensitivity to the broader economy. For the full year 2022, United’s revenues and EPS are expected to be up approximately 13% and 17%, respectively. Versus 2019, the company’s revenues and EPS are expected to have compounded at annual rates of approximately 10% and 14%, respectively.

UnitedHealth Group may not be a particularly beloved company, but it is one of the more entrenched businesses we’ve come across. Managed care, in its various forms-commercial risk, commercial fee, Medicare Advantage, and managed Medicaid- is an utterly essential component of our healthcare system. And in managed care, no one is bigger, more diversified or better run than United. In addition to its managed care business, United owns and operates the country’s third largest pharmacy benefit manger and is also the single largest owner by a wide margin of non-hospital care assets, including physician practices, urgent care centers, and ambulatory surgical centers…” (Click here to read the full text)

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