In this article, we will look at 5 best recession stocks to buy according to Wells Fargo. If you want to explore similar stocks, you can also take a look at 10 Best Recession Stocks to Buy According to Wells Fargo.
5. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 64
Wells Fargo named The Coca-Cola Company (NYSE:KO) among its top 5 consumer staples picks for a recession. We included The Coca-Cola Company (NYSE:KO) in our rankings because of the company’s dividend history, global presence, and pricing power over peers. As of June 22, the stock has a forward dividend yield of 2.96% and has gained 11.25% over the past twelve months.
Another major American bank, Morgan Stanley, compiled a list of “top stocks insulated from risk with recession not fully priced in”, in which they ranked The Coca-Cola Company (NYSE:KO). Morgan Stanley analysts have an Overweight rating on The Coca-Cola Company (NYSE:KO) and see an upside to the stock’s price target as we progress into 2023.
Insider Monkey spotted 64 hedge funds bullish on The Coca-Cola Company (NYSE:KO) at the close of Q1 2022. The total stakes of these funds came in at $29.17 billion, up from $28.61 billion a quarter ago with 70 positions.
As of March 31, Berkshire Hathaway owns 400 million shares of The Coca-Cola Company (NYSE:KO), making it the top shareholder in the beverages giant.
ClearBridge Investments mentioned The Coca-Cola Company (NYSE:KO) in its “Dividend Strategy” fourth-quarter 2021 investor letter. Here is 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.”
4. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 74
On April 21, AT&T Inc. (NYSE:T) released its earnings for the fiscal first quarter of 2022. The company registered an EPS of $0.77 and outperformed consensus by $0.02. The company’s revenue declined by 13.28% year over year and came in at $38.11 billion, missing expectations by $129.79 million. Regardless of experiencing declining sales, the stock was named among Wells Fargo’s top recession stock picks from the communication services sector.
As of June 22, AT&T Inc. (NYSE:T) has a dividend yield of 5.73% and a forward PE ratio of 7.55, two additional features that merited its inclusion in our selection of the best recession stocks to buy according to Wells Fargo.
AT&T Inc. (NYSE:T) is receiving Buy ratings from other financial experts as well. On June 16, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on AT&T Inc. (NYSE:T) but lowered his price target on the shares to $28 from $31.
Hedge funds are initiating positions in AT&T Inc. (NYSE:T). At the close of Q1 2022, 74 hedge funds held stakes in the company, up from 70 positions a quarter ago. The stakes of the hedge funds in Q1 amounted to roughly $4.0 billion, down from $4.9 billion a quarter ago.
As of March 31, Arrowstreet Capital owns the most shares of AT&T Inc. (NYSE:T), roughly 28.7 million, and is the dominating shareholder in the company.
Weitz Investment Management mentioned AT&T Inc. (NYSE:T) in its “Hickory Fund” fourth-quarter 2021 investor letter. Here is what the firm thinks about AT&T Inc. (NYSE:T):
“After several quarters of pandemic-induced outsized growth, new broadband connection growth has slowed for U.S. cable operators. This slower growth has coincided with a renewed push by competitors like Verizon and AT&T Inc. (NYSE:T) to offer high-speed data (either via wireless connects or by building new fiber-optic networks).”
3. Comcast Corporation (NASDAQ:CMCSA)
Number of Hedge Fund Holders: 78
Comcast Corporation (NASDAQ:CMCSA) is receiving consensus Buy ratings from expert analysts and was also ranked among Wells Fargo’s top communication services stock picks for a recession. As of June 2, Benchmark analyst Matthew Harrigan has a $60 price target and Buy rating on Comcast Corporation (NASDAQ:CMCSA).
Comcast Corporation (NASDAQ:CMCSA) is an undervalued dividend-paying communication services stock to look into. As of June 22, the stock has a forward dividend yield of 2.79% and a PE ratio of 10.76. On May 10 the company’s board of directors declared a quarterly cash dividend of $0.27 per share, payable on July 27, to shareholders of record on July 6.
Insider Monkey found 78 hedge funds that were bullish on Comcast Corporation (NASDAQ:CMCSA) in the first quarter of 2022. These funds held collective stakes worth $7.12 billion in the company.
As of March 31, First Eagle Investment Management is the leading shareholder in Comcast Corporation and has a total stake of $1.40 billion in the company.
Here is what ClearBridge Investments had to say about Comcast Corporation (NASDAQ:CMCSA) in its “All Cap Growth Strategy” fourth-quarter 2021 investor letter:
“Weakness among our holdings in the communication services sector was the other detractor to performance. Comcast was hurt by tepid subscriber growth in its broadband business but demonstrated strong growth in free cash flow, positioning the company for accelerated capital return going forward.”
2. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 83
From Wells Fargo’s healthcare stock picks for a recession, we have chosen Johnson & Johnson (NYSE:JNJ). The company’s legacy business operations and rich dividend history make it a compelling investment option for challenging times like these. As of June 22, Johnson & Johnson (NYSE:JNJ) has a forward dividend yield of 2.67% and has gained 5.74% over the past twelve months.
On April 19 Johnson & Johnson (NYSE:JNJ) reported earnings for the first quarter of fiscal year 2022, in which it exceeded EPS expectations. The company reported earnings per share of $2.67 and beat estimates by $0.10. The company’s revenue for the quarter amounted to $23.43 billion, up 4.95% year over year, but missed estimates by $192.16 million. As of May 23, SVB Leerink analyst David Risinger has an Outperform rating and a $200 price target on Johnson & Johnson (NYSE:JNJ).
As of March 31, Arrowstreet Capital is the most prominent shareholder in Johnson & Johnson (NYSE:JNJ). The fund’s stakes in the healthcare giant are valued at $1.17 billion, up 38% from its Q4 2021 stakes.
At the end of the first quarter of 2022, 83 hedge funds were bullish on Johnson & Johnson (NYSE:JNJ) with stakes worth $7.40 billion. This is compared to 83 positions in the fourth quarter of 2021, with stakes worth $7.38.
1. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 104
Berkshire Hathaway Inc. (NYSE:BRK-B) was among Wells Fargo’s top financials stock picks for a recession. At the close of Q1 2022, 104 hedge funds disclosed ownership of stakes in Berkshire Hathaway Inc. (NYSE:BRK-B). These funds held collective stakes worth $19.06 billion in the company. The conglomerate has a diverse portfolio of investments spanning technology, services, consumer staples, healthcare, and energy among others. A diverse portfolio allows Berkshire Hathaway Inc. (NYSE:BRK-B) to manage risk and makes it a relatively less volatile stock to invest in.
This April, Berkshire Hathaway Inc. (NYSE:BRK-B) announced another strong quarter when it released its earnings for the first quarter of fiscal year 2022. The company’s revenue for the quarter amounted to $70.81 billion, up 9.61% year over year, and was ahead of expectations by $1.66 billion. Berkshire Hathaway Inc. (NYSE:BRK-B) registered an EPS of $3.18 and outperformed Wall Street consensus by $0.31.
As of March 31, Bill & Melinda Gates Foundation Trust owns more than 28 million shares of Berkshire Hathaway Inc. (NYSE:BRK-B) which amounts to a stake of $10.12 billion. Bill & Melinda Gates Foundation Trust is the leading stakeholder in the company.
Here is what Black Bear Value Partners had to say about Berkshire Hathaway Inc. (NYSE:BRK-B) in its first-quarter 2022 investor letter:
“Below is the rough Berkshire on-a-napkin valuation I like to do periodically. Recently BRK acquired Alleghany for $11.6BB. I assume a reduction in cash for this amount and an increase of $550MM in operating income. I do not give benefit to the increased float nor any synergies. Again, this is a rough exercise to sanity check our assumptions.
Cash of ~$103,000 per class A Share (vs. $104k 1 year ago)
-Down/Base/Up marks cash at book value to an 8% premium (vs. to 10% a year ago)
-Investments based on December prices ~$248,000 per class A share (vs. $194k a year ago)
Presume a range of stock prices that result in:
-Down = $149,000 per class A share (-40%- assumes portfolio is overpriced)
-Base = $211,000 per class A share (-15% – assumes portfolio is overpriced)
-Up = $285,000 per class A share (+15%)
Operating businesses that should generate ~$17,000 of pre-tax income per Class A share (vs. $15k)
-Down = 9x = $153,000 per share – equates to ~8% FCF yield
-Base = 12x = $204,000 – equates to ~6% FCF yield
-Up = 12x = $204,000 – equates to ~6% FCF yield
Overall (vs. $529,000 at quarter end)
-Down = $413,000 (-28%)
-Base = $526,000 (fairly priced)
-Up = $600,000 (13% underpriced)
Going forward I expect Berkshire to compound at good, not great returns. The likely question is why own it at all if we expect modest returns…
BRK is a collection of high-quality businesses, excellent management, and a good amount of optionality in their cash position. If the cash were to be deployed accretively the true value would be greater than an 8% premium (as mentioned above). The combination of a pie that is growing, an increasing share of said pie due to stock buybacks, upside optionality from cash and a tight range of likely business outcomes that span a variety of economic futures gives me comfort in continuing to own Berkshire.”
You can also take a look at 10 Stocks to Buy Before the Next Recession and 10 Best Recession Stocks To Buy.
