In this article, we discuss 5 stocks to brace yourself for recession. If you want to see more stocks in this selection and a detailed outlook on the current market, check out ‘More Pain Likely Ahead’: 10 Stocks to Brace Yourself for Recession.
5. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 61
Morgan Stanley (NYSE:MS) is an American multinational investment management and financial services holding company, operating through Institutional Securities, Wealth Management, and Investment Management segments. On April 14, the company posted its Q1 results, reporting earnings per share of $2.06 and a revenue of $14.80 billion, topping analysts’ estimates by $0.34 and $1.05 billion, respectively. Morgan Stanley (NYSE:MS) delivers a dividend yield of 3.28% as of June 8.
On May 3, Oppenheimer analyst Chris Kotowski upgraded Morgan Stanley (NYSE:MS) to Outperform from Perform with a $111 price target, citing loan growth and rising interest rates as optimistic macro factors for banks. His valuation model suggests that Morgan Stanley (NYSE:MS) has 30%-plus upside potential in the 12-18 months ahead and he sees the weakness in shares as a buying opportunity.
Among the hedge funds tracked by Insider Monkey, 61 funds were bullish on Morgan Stanley (NYSE:MS) at the end of March 2022, with collective stakes worth $3.25 billion. Boykin Curry’s Eagle Capital Management is the biggest position holder in the company, with more than 14 million shares worth $1.2 billion.
Here is what Artisan Value Fund has to say about Morgan Stanley (NYSE:MS) in its Q3 2021 investor letter:
“Morgan Stanley, a leading global financial services company, came into the portfolio in late 2020 as a result of its purchase of E*TRADE. The acquisition is a great fit for Morgan Stanley’s wealth management platform and provides a considerable amount of non-interest-bearing deposit funding. James Gorman, chairman and CEO, has steadily de-risked the business by adding less volatile fee streams to complement its leading positions in cyclical businesses such as advisory, equities and FICC (fixed income, currencies and commodities). We believe the company will prove its resiliency and value over the long term.”
4. McKesson Corporation (NYSE:MCK)
Number of Hedge Fund Holders: 59
McKesson Corporation (NYSE:MCK) is a Texas-based healthcare services company, operating through four segments – U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions. On May 5, McKesson Corporation (NYSE:MCK) posted a Q1 revenue of $66.10 billion, outperforming market consensus by $2.28 billion. McKesson Corporation (NYSE:MCK) declared on July 28 a quarterly dividend of $0.47 per share. The dividend is payable on July 1, to shareholders of record on June 1.
Deutsche Bank analyst George Hill upgraded McKesson Corporation (NYSE:MCK) on June 7 to Buy from Hold, raising the price target to $378 from $343. The analyst is highly concerned about recessionary threats in the United States and is seeking out defensive equity holdings. With its fiscal 2023 guidance now in the rear view, a refocused business after corporate divestitures, the opioid overhang resolved, and “solid multi-year visibility,” McKesson Corporation (NYSE:MCK) stock has a positively skewed risk/reward profile yet again, the analyst told investors. He noted that the company is aiming for double-digit “sustainable and visible” earnings and cash flow growth in a defensive non-cyclical sector with largely visible demand, while trading at a discount to peers.
According to Insider Monkey’s data, McKesson Corporation (NYSE:MCK) was part of 59 public hedge fund portfolios at the end of March 2022, up from 57 funds in the earlier quarter. Richard S. Pzena’s Pzena Investment Management is one of the significant shareholders of the company, with 2.70 million shares worth $827.3 million.
Here is what Broyhill Asset Management has to say about McKesson Corporation (NYSE:MCK) in its Q4 2021 investor letter:
“Shares of McKesson tacked on another 23% during the second half. Even after gaining 44% for the full year, the stock still trades at a 50% discount to the market. Like our Dollar Tree investment, investor sentiment around McKesson languished for years as deflating generic drug prices compressed operating margins and the uncertainty of opioid litigation capped valuation multiples. But pricing has stabilized, a global opioid settlement appears imminent, and prescription trends are rapidly recovering at the same time vaccine-related revenues are accelerating.
Since FY19, revenues have grown at 7% annually, driving earnings per share growth, which should shake out at 11% – 14% through FY22. Over this three-year period, McKesson has generated $15 billion
in cumulative free cash flow (roughly two-thirds of its market capitalization at the beginning of the period), returning roughly half of that to shareholders through repurchases (shares outstanding have declined by 24% on $6B of buybacks) and dividends (which have increased 22% over this period), while reducing leverage from 2.8x to 1.6x.
Does that sound like a business that should change hands at half the market’s valuation? We don’t think so. Even assuming shares traded back to three-quarters of the market’s multiple (in line with the average of the past decade), shares could return 15% – 20% annually over the next few years.”
3. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 64
NextEra Energy, Inc. (NYSE:NEE) was founded in 1925 and is headquartered in Juno Beach, Florida. The company generates electric power through wind, solar, nuclear, coal, and natural gas facilities, catering to retail and wholesale customers in North America. NextEra Energy, Inc. (NYSE:NEE) posted Q1 earnings per share of $0.74, beating market consensus by $0.02. The company also announced on May 19 a $0.425 per share quarterly dividend, payable on June 15 to shareholders of the company as of May 31.
Mizuho analyst Paul Fremont reiterated a Buy rating on NextEra Energy, Inc. (NYSE:NEE) but lowered the price target on the stock to $81 from $88 after the Q1 results. The analyst does not expect the Department of Commerce’s solar panel investigation to lead to greater tariffs on panels from Southeast Asian countries, as it will likely slow the progress of U.S. decarbonization goals. NextEra Energy, Inc. (NYSE:NEE) has affirmed its growth guidance through 2025, and the company will continue to lead in the utility space with earnings growth at 8%, said the analyst.
Among the hedge funds tracked by Insider Monkey, 64 funds were bullish on NextEra Energy, Inc. (NYSE:NEE) at the end of Q1 2022, up from 55 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 15.6 million shares worth $1.3 billion.
2. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 43
Marathon Oil Corporation (NYSE:MRO) is an independent exploration and production company in the United States and internationally, offering crude oil and condensate, natural gas liquids, and natural gas. The company reported a Q1 EPS of $1.02, above consensus by $0.04. 2022 marks the 5th consecutive year of dividend growth for Marathon Oil Corporation (NYSE:MRO). The company reported a per share quarterly dividend of $0.08, a 14.3% increase from its prior dividend of $0.07. The dividend is payable on June 10, for shareholders of record on May 18.
Mizuho analyst Vincent Lovaglio on May 31 raised the price target on Marathon Oil Corporation (NYSE:MRO) to $38 from $35 and maintained a Buy rating on the shares. According to the analyst, the global energy crisis has driven energy commodity prices higher, while logistics and supply chain challenges, the macro uncertainty, and a change in corporate behavior impede on the growth prospects, the analyst told investors. This theme benefited the U.S. exploration and production companies, and the analyst expects this to remain the case.
According to the database of Insider Monkey, 43 funds were long Marathon Oil Corporation (NYSE:MRO) at the end of Q1 2022, compared to 40 funds in the earlier quarter. John Overdeck and David Siegel’s Two Sigma Advisors is one of the leading stakeholders of the company, with 6.4 million shares worth $162.8 million.
1. Nutrien Ltd. (NYSE:NTR)
Number of Hedge Fund Holders: 60
Nutrien Ltd. (NYSE:NTR) is a Canadian company that offers potash, nitrogen, phosphate, and sulfate products. On May 18, the company declared a quarterly dividend of $0.48 per share, in line with previous. The dividend is distributable on July 15, to shareholders of record on June 30.
Barclays analyst Benjamin Theurer on June 1 initiated coverage of Nutrien Ltd. (NYSE:NTR) with an Overweight rating and a $116 price target. The analyst also started coverage of five fertilizer and agriculture supply companies. He sees lasting supply/demand tightness beyond 2023, which bodes well for the broader group regardless of recent outperformance relative to major benchmark indexes.
Among the hedge funds tracked by Insider Monkey, 60 funds reported owning stakes in Nutrien Ltd. (NYSE:NTR) at the end of Q1 2022, worth about $2 billion, up from 36 in the previous quarter worth $870 million. Jean-Marie Eveillard’s First Eagle Investment Management is the largest shareholder of the company, with 8.3 million shares valued at $870 million.
Here is what Miller/Howard Investments had to say about Nutrien Ltd. (NYSE:NTR) in its Q1 2021 investor letter:
“For the most part, performance of the stocks within the Income-Equity Strategies was skewed towards the high-performing market sectors with two exceptions – our consumer discretionary and technology stocks both did better than their broad market peers… We bought Nutrien (NTR), a producer of fertilizer, which we believe should benefit from increasing crop prices.”
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