In this article, we discuss the 5 stocks most vulnerable to recession. If you want to read our discussion on the global economic situation, go directly to 10 Stocks Most Vulnerable to Recession.
5. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 52
The Boeing Company (NYSE:BA) is an Arlington, Virginia-based aerospace and aviation company that specializes in designing, manufacturing, and supplying airplanes, satellites, telecommunication, and related equipment.
On July 15, Josh Sullivan at Benchmark slashed the price target on The Boeing Company (NYSE:BA) by 20% to $200. The analyst highlighted that he anticipates The Boeing Company (NYSE:BA) to report an adjusted loss per share of eight cents as opposed to the consensus forecast of 13 cents per share for the second quarter of 2022.
Historically, The Boeing Company (NYSE:BA) has not fared well during recessionary times as the demand for its products falls during an economic downturn. The company has already been facing difficulties following the Covid-19 pandemic and the grounding of its 737 Max airliners due to two plane crashes. Furthermore, The Boeing Company (NYSE:BA) has seen its debt rise by over 400% over the course of the last five years.
The Boeing Company (NYSE:BA) was held by 52 hedge funds as of Q1 2022.
4. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 53
Eli Lilly and Company (NYSE:LLY) is an Indiana-based pharmaceutical company.
As per Goldman Sachs, Eli Lilly and Company (NYSE:LLY) is one of the stocks having the greatest gaps between its historical recession margin growth and the consensus forecasts for 2023. Analysts anticipate Eli Lilly and Company’s (NYSE:LLY) net profit margin to increase by 2.12% in 2023. Meanwhile, in the past three recessions, the company’s net profit margin has plummeted by 5.84%. There is a 7.96% ppts difference between the two data points. Furthermore, Eli Lilly and Company’s (NYSE:LLY) 12-month forward P/E multiple reflects a premium of 102% when compared to the 20-year P/E median.
Eli Lilly and Company (NYSE:LLY) was discussed in the Q1 2022 investor letter of Baron Funds. Here’s what the firm said:
“Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical company with a diverse offering primarily focused on therapeutics. Performance was strong mostly due to consistent financial growth powered by its core diabetes (and future obesity) franchise, as well as the constant drumbeat surrounding the Alzheimer’s therapeutic market, of which Eli Lilly has one of the three potential winning blockbuster candidates in Donanemab. We retain conviction in Eli Lilly given the company’s strong long-term growth outlook.”
Two Sigma Advisors slashed its holding in Eli Lilly and Company (NYSE:LLY) by 40% during Q1 2022.
3. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 58
McDonald’s Corporation (NYSE:MCD) is a Chicago, Illinois-based fast food giant.
On July 7, Brian Mullan at Deutsche Bank reduced the price target on McDonald’s Corporation (NYSE:MCD) from $265 to $263 ahead of the Q2 2022 results. Presently, the P/E multiple of McDonald’s Corporation (NYSE:MCD) shows a 45% premium when compared to the 20-year median one-year forward P/E multiple. Goldman Sachs sees a gap of over 550 bps between the 2023 forecasts for McDonald’s Corporation (NYSE:MCD) and the recession margin growth recorded historically.
Furthermore, to overcome allegations of evading taxes in France by transferring revenue to Luxemburg and Switzerland illegally, McDonald’s Corporation (NYSE:MCD) has agreed to pay $1.3 billion to settle these claims. McDonald’s Corporation (NYSE:MCD) would be paying a sum that is two-and-half times higher than the taxes evaded by the corporation.
McDonald’s Corporation (NYSE:MCD) was held by 58 hedge funds as of Q1 2022.
2. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
NVIDIA Corporation (NASDAQ:NVDA) is a Santa Clara, California-based tech company that provides computing, graphics, and networking solutions to various industries like gaming, healthcare, and transportation.
Goldman Sachs sees NVIDIA Corporation (NASDAQ:NVDA) as one of the stocks that have the most to lose in case of a deep recession. On July 15, Toshiya Hari at Goldman Sachs decreased the price target on NVIDIA Corporation (NASDAQ:NVDA) from $192 to $166 and reiterated a Neutral rating on the stock. The revised target price only provides a modest upside of 5.3% from the closing price as of July 15. Hari slashed his estimates and the target price to reflect the worsening macroeconomic and operating environment for the chip makers along with weak industrial data. During June, US video game spending related to accessories, content, and hardware fell by 11% YoY to $4.3 billion.
ClearBridge Investments shared its stance on NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2022 investor letter. Here’s what the firm said:
“Gaming is an attractive end market within the media/technology sector with strong growth and a long runway, particularly in mobile gaming. Unity’s platform provides an engine and toolkit for development and monetization of games, e-commerce and industrial applications, adding to our industry exposure, which also includes Nvidia (NASDAQ:NVDA) in graphic processing chips.”
Overall, 102 hedge funds held a stake in NVIDIA Corporation (NASDAQ:NVDA) at the end of Q1 2022, down from 110 in the preceding quarter.
1. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 113
The Walt Disney Company (NYSE:DIS) is a California-based mass media and entertainment giant.
On July 14, Kannan Venkateshwar at Barclays reduced the price target on The Walt Disney Company (NYSE:DIS) from $130 to $120 and reiterated an Equal Weight rating on the stock. The analyst expects modification in the guidance structure from some media companies due to a weakening in ad spending growth. Venkateshwar also anticipates the guidance of The Walt Disney Company (NYSE:DIS) to be revised to incorporate the impact of losing digital rights to broadcast Indian cricket globally.
The Walt Disney Company (NYSE:DIS) stock has lost over 35% of its value since the start of the year. The company’s debt levels are at an all-time high, making it susceptible to the burden of high-interest expenses in the future. Furthermore, The Walt Disney Company (NYSE:DIS) appears overvalued, with an elevated EV/EBITDA and a PE ratio of 62.55 as of July 15.
Here’s what Harding Loevner said about The Walt Disney Company (NYSE:DIS) in its Q1 2022 investor letter:
“The war in Ukraine has given new urgency to the question of whether globalization has reached a tipping point and if the familiar web of decentralized, just-in-time, global supply chains will be a casualty of the inward turn dividing countries into competing trading blocs. It is probably too soon to know. We sold Disney (NYSE:DIS), due to some concerns about the increasing capital intensity of its business amid signs of rising competition and slowing growth in streaming media consumption.”
As of Q1 2022, 113 hedge funds held a stake in The Walt Disney Company (NYSE:DIS), with a cumulative stake worth over $5 billion.
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