In this article, we discuss 5 stocks smart investors buy during recessions. If you want to read about some stocks that investors buy during recessions, go directly to 10 Stocks Smart Investors Buy During Recessions.
5. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 65
Lowe’s Companies, Inc. (NYSE:LOW) is a home improvement retailer. On May 18, the firm posted earnings for the first quarter of 2022, reporting earnings per share of $3.51, beating estimates by $0.28. The revenue over the period was $23.6 billion, down nearly 3% compared to the revenue over the same period last year. In guidance for 2022, the firm said it expected total sales of around $97 billion to $99 billion against consensus estimates of $97.97 billion. The firm forecast share repurchases of around $12 billion in the 2022 fiscal year.
On May 19, Jefferies analyst Jonathan Matuszewski maintained a Buy rating on Lowe’s Companies, Inc. (NYSE:LOW) stock and lowered the price target to $238 from $290, backing the firm to meet sales and margin guidance for 2022.
At the end of the first quarter of 2022, 65 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Lowe’s Companies, Inc. (NYSE:LOW), compared to 62 in the preceding quarter worth $6.8 billion.
In its Q4 2021 investor letter, Pershing Square Capital Management, an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:
“Lowe’s Companies, Inc. (NYSE:LOW) is a high-quality business with significant long-term earnings growth potential
Supportive macroeconomic backdrop
-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog
-COVID-19 causing millennials to enter the housing market
Positioned to grow EPS largely independent of market conditions
-Idiosyncratic revenue opportunities driving share gains
-Self-help initiatives catalyzing operating margin expansion
-Buybacks representing ~8% of current market capitalization planned for 2022
Multi-year business transformation with substantial earnings upside
-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing
-Potential to generate high-teens EPS growth over the next several years.
Lowe’s Companies, Inc. (NYSE:LOW) continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”
4. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 69
Verizon Communications Inc. (NYSE:VZ) is a communications and technology firm. In late March, the company announced that it was teaming up with Live Nation in a multi-year deal under which the latter would market exclusive ticket pre-sales and 5G technology at different concert venues. The former is already under contract to deploy the new generation of internet technology at clubs, theaters, and amphitheaters of Live Nation around the United States. Live Nation will also provide exclusive access to the Plus Pay platform of Verizon under the deal.
Verizon Communications Inc. (NYSE:VZ), in a move aimed at navigating labor troubles, recently announced that it would be raising the minimum wage at the firm to $20 per hour. The firm also announced premium pay differentials for managers who work on holidays.
At the end of the first quarter of 2022, 69 hedge funds in the database of Insider Monkey held stakes worth $4.1 billion in Verizon Communications Inc. (NYSE:VZ), compared to 63 in the previous quarter worth $10.8 billion.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Verizon Communications Inc. (NYSE:VZ) 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 telecom (Verizon Communications Inc. (NYSE:VZ)). 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.”
3. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 75
The Home Depot, Inc. (NYSE:HD) is a home improvement retailer. The company has an impressive dividend history stretching back close to three decades. In the past 14 years, these payouts have consistently grown. For an industry where the median in this regard is just one year, this represents the advantage that the stock offers over peers regardless of the economic outlook. On May 19, the firm declared a quarterly dividend of $1.90 per share, in line with previous. The forward yield was 2.64%.
On May 20, Citi analyst Steven Zaccone kept a Buy rating on The Home Depot, Inc. (NYSE:HD) stock and raised the price target to $348 from $327. The analyst also increased the earning estimates for the firm for the 2022 fiscal year.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in The Home Depot, Inc. (NYSE:HD), with 8.1 million shares worth more than $2.4 billion.
In its Q1 2022 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and The Home Depot, Inc. (NYSE:HD) was one of them. Here is what the fund said:
“The Home Depot, Inc. (NYSE:HD) (7.7% weight in the Fund): The demand surge for remodeling and home improvement goods sparked by shelter in place orders, remote work going mainstream, and a shortage of homes on the market to buy, ran headlong into the supply chain crisis, triggering surging prices in the products Home Depot sells. But the company has been able to pass nearly all of these increased costs on to customers, with revenue growing 37% over the past two years while gross profits, or the profits the company makes on each item they sell, increased by 35%. Even this small difference appears to be due not to inflation eating away at Home Depot’s profits, but rather be a function of the huge increase in revenue the company has been generating in low margin lumber sales.”
2. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Micron Technology (NASDAQ:MU) makes and sells semiconductor products. In late March, the company posted earnings for the second fiscal quarter, reporting earnings per share of $2.14, beating market estimates by $0.16. The revenue over the period was $7.79 billion, up more than 24% year-on-year and beating estimates by $260 million. The operating cash flows for the firm over the period were $3.63 billion, up from $3.3 billion in the same period last year. The shares of the firm jumped 4% after the earnings release.
On April 30, Mizuho analyst Vijay Rakesh maintained a Buy rating on Micron Technology (NASDAQ:MU) stock and raised the price target to $113 from $110, identifying product mix and content increases as some of the key growth catalysts for the firm.
At the end of the first quarter of 2022, 78 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Micron Technology (NASDAQ:MU), compared to 83 in the previous quarter worth $5.5 billion.
In its Q3 2021 investor letter, Hazelton Capital Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:
“It’s hard to explain how shares of Micron Technology (NASDAQ:MU), manufacture of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology (NASDAQ:MU) trades at just 8x 2022 estimate earnings. Micron Technology (NASDAQ:MU) is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
NVIDIA Corporation (NASDAQ:NVDA) is a visual computing firm. A lagging economy and higher interest rates have weighed on the shares of the company in the past few months, resulting in almost a 50% decline in share price since late 2021. However, the firm remains in prime position to take advantage of the high demand for chips that are used across multiple consumer products. The firm has a gross profit margin of over 64% and annual revenue growth of over 61%, far ahead of peers.
On May 23, Bernstein analyst Stacy Rasgon maintained an Outperform rating on NVIDIA Corporation (NASDAQ:NVDA) stock and lowered the price target to $225 from $325, noting the stock had been a victim of the growth sell-off.
At the end of the first quarter of 2022, 102 hedge funds in the database of Insider Monkey held stakes worth $6.3 billion in NVIDIA Corporation (NASDAQ:NVDA), compared to 110 the preceding quarter worth $10.4 billion.
In its Q1 2022 investor letter, RiverPark Funds, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corporation (NASDAQ:NVDA) is the leading designer of graphics processing chips (commonly known as GPU’s- graphics processing units), required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming- focused chip vendor to one of the largest semiconductor/software vendors in the world, dominating the core secular growth markets of gaming, data centers and professional visualization. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. For 2021 the company generated 61% revenue growth to $27 billion, expanded its EBITDA margins to over 44% and generated over $8 billion of free cash flow. Over the past five years, the company has generated a cumulative $23 billion of FCF after cumulative capital expenditures of less than $4 billion.
We expect future growth to remain robust as NVIDIA Corporation (NASDAQ:NVDA) chips and software are critical to many of the core technologies being adopted globally, including cloud computing, virtual reality and advanced artificial intelligence. As with NFLX, we took advantage of the over 40% recent drop in the company’s shares over the last several months to initiate a small position.”
You can also take a peek at 10 Stocks Reddit’s WallStreetBets is Buying in July 2021 and Top Robinhood Stocks Popular on Reddit.
