In this article, we will take a detailed look at Top 10 Stocks to Watch as Investors Brace for a Potential Recession.
President Donald Trump’s new reciprocal tariff announcement is hammering stock markets around the world as countries face a new reality and trade dynamics. The rising volatility has increased recession risks. Goldman Sachs recently said that it sees a 35% chance of a recession in the next 12 months, up from 20% previously. The bank also cut its 2025 GDP forecast to just 1% and raised its year-end unemployment rate outlook by 0.3 percentage points to 4.5%.
China and key European countries are beginning to respond to the latest tariffs and will likely impose retaliatory tariffs on US products, causing a further downturn in consumer sentiment. Kara Reynolds, an economist at American University, told ABC News that a pullback in spending from consumers and businesses due to these uncertainties can tip the US into a recession.
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For this article, we picked 10 stocks currently on Wall Street’s radar. With each stock, we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
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10. Super Micro Computer Inc (NASDAQ:SMCI)
Number of Hedge Fund Investors: 33
Jeff Pierce from Charles Schwab said in a recent program on Schwab Network that Super Micro Computer Inc (NASDAQ:SMCI)’s SEC filing issues are now “behind” us and the company is inching towards growth. The analyst also mentioned a couple of bullish reports on the stock from notable Wall Street firms.
“I do think it is piling on to the acknowledgment that maybe some of the issues, especially around the SEC filings, are now behind us. We’re very far away from those 100-plus per share prices we saw this time last year, but they are inching up year to date. JPMorgan, as you pointed out, upgraded them to neutral from underweight, with a price target of 45, up from 35. They said the company has cycled past the uncertainty around those SEC filings and is on the cusp of benefiting from the ramp in Blackwell-based server shipments, which already show materially higher demand than prior generations. However, the firm did say they are raising their revenue forecast for the next 12 months, given the positive data points in recent weeks related to a better supply ramp from Nvidia. That balances the upcoming strong revenue progression with potential concerns about some of their margin trajectory, especially in a competitive landscape that’s been getting tighter. It’s similar to what we’ve seen from some other analysts. Last week, Rosenblatt reinstated their coverage of Super Micro Computer Inc (NASDAQ:SMCI) with a buy rating and a $60 price target. They seem to feel positive about the AI systems and gross margin upside. They also noted that there is still room for the company’s price-to-earnings multiple to move higher if they start to hit those revenue and gross margin targets.”
9. Intel Corp (NASDAQ:INTC)
Number of Hedge Fund Investors: 68
Kim Forrest from Bokeh Capital said in a latest program on Schwab Network that she’s still holding on to Intel Corp (NASDAQ:INTC). Here’s why:
“I continue to hold it because its drubbing at the end of last year just made me think, you know, look, there’s more value in this name than anybody is recognizing at this point. And maybe, maybe just maybe, Pat Gelsinger saying, “Hey, we’re going to be a foundry,” made people look and say, “Look at all those foundry assets that they have.” And he was not able to turn this company around in the time and the way he wanted, but I think it is a vestige of his past that now, of all places, TSMC is looking, going, “Hey, maybe we can make something out of this company by adding their expertise to the foundries.” And I think that is the most exciting thing, and I’ve been waiting for somebody on the board or the next CEO to think out of the box to try to get some shareholder value back in this name.”
Intel’s turnaround will take a while. In the first quarter, the company sees revenue of $12.2 billion at the midpoint of its guidance, reflecting an 11-18% decline quarter-over-quarter. The company has also scrapped its plans to launch Falcon Shores, its next-generation AI GPUs. A few months back it was a key catalyst expected to debut in late 2025. Intel’s Clearwater Forest AI data center server CPUs, which were set to use its 18A chip (similar to TSMC’s 3nm nodes), have had their launch delayed from FY2025 to FY2026. These setbacks are likely to affect Intel’s already struggling Data Center & AI business segment. Consensus expectations suggest the company won’t see positive free cash flow for at least the next three years.
Invesco Growth and Income Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q3 2024 investor letter:
“Intel Corporation (NASDAQ:INTC): The chipmaker reported weaker-than-expected quarterly results as revenues declined and earnings were below expectations. Management also provided weaker guidance going forward; the stock fell on the news. We sold the position during the quarter.
The chipmaker’s quarterly earnings report was weaker than anticipated as revenues declined and earnings were below expectations. Management also provided weaker guidance going forward. Given that a potential recovery appears to be further in the future than we originally anticipated, we sold the position.”
8. TransDigm Group Inc (NYSE:TDG)
Number of Hedge Fund Investors: 71
Jed Ellerbroek from Argent Capital said in a latest program that he’s bullish on TransDigm Group Inc (NYSE:TDG). Here is how he explained his bullish thesis for the aerospace company:
“One of our favorites is the Aerospace aftermarket, and so we own a company called TransDigm. There are smaller-cap companies that we own in our midcap and small-cap strategies. Those businesses cater to airplane aftermarket demand, so they’re selling replacement aircraft products to airlines and SS. That business is growing rapidly today—it’s always growing, but it’s growing especially well these days because Boeing has had trouble delivering new airplanes to clients.”
Mar Vista Strategic Growth Strategy stated the following regarding TransDigm Group Incorporated (NYSE:TDG) in its Q3 2024 investor letter:
“TransDigm Group Incorporated (NYSE:TDG) reported another earnings beat-and-raise during its fiscal third quarter as it continues to benefit from a surge in global travel, surpassing pre-pandemic levels. The airlines posted no significant change in aircraft order or delivery patterns despite overcapacity issues. Both Boeing and Airbus remain in a holding pattern on producing and delivering new units due to manufacturing quality and labor issues (strike) in the case of Boeing and supply chain challenges in the case of Airbus. This plays directly into the hands of TransDigm’s most profitable business, commercial aerospace aftermarket, as load factors remain high, and take-offs and landings continue to grow beyond pre-pandemic levels. Moreover, the company announced a significant special dividend to be paid in October 2024. Even with this payment, TransDigm has over $5.5 billion of capital to execute its acquisition strategy in what should be a robust M&A market in 2025.”
7. Progressive Corp (NYSE:PGR)
Number of Hedge Fund Investors: 95
Jed Ellerbroek from Argent Capital explained in a latest program on Schwab Network why he likes Progressive Corp (NYSE:PGR).
“Progressive is our favorite defensive growth business. When I say defensive, I mean not economically sensitive—we’re all buying auto insurance whether the stock market is up or down, whether the economy is growing rapidly or in recession. We all have to have that auto insurance, so that stable demand is a good thing. You want some of that in your portfolio. Progressive pairs that with pretty impressive growth, and that growth is largely coming through market share gains, where they are outgrowing and outcompeting their peers like State Farm, Geico, Allstate, etc.”
Artisan Mid Cap Value Fund stated the following regarding The Progressive Corporation (NYSE:PGR) in its Q4 2024 investor letter:
” On the positive side, our financials holdings delivered strong absolute and relative returns in 2024, and each of our biggest contributors—First Citizens, M&T Bank and Progressive—was in the financials sector. We exited The Progressive Corporation (NYSE:PGR), one of the largest personal auto insurers in the US, this quarter after a long holding period that began in 2007. As a long-time holding, Progressive is an example of how we put our process into motion. We were able to purchase it at an attractive price, but most of our holding period return came from the value created by the business itself. We recognized the strength of its business model demonstrated by consistent free cash flow generation and above average returns on equity and had a high regard for management, which had a proven track record of pricing discipline through the cycle and prudent capital allocation. Due to its success, Progressive’s market capitalization now exceeds the upper limit of our mid-cap investment universe.”
6. Bank of America Corp (NYSE:BAC)
Number of Hedge Fund Investors: 98
Steve Weiss, Founder and Managing Partner of Short Hills Capital Partners, said in a recent program on CNBC that he’s bullish on Bank of America (NYSE:BAC) and buying more of the bank’s shares.
“Look, Bank of America Corp (NYSE:BAC) has been a relatively small position for me for a while. I’ve owned it for a long time, but I look — I look at deregulation as definitely going to impact the financials and the banks. So, I’m not looking for them, as I said before, to lower their underwriting standards, and I’m not looking for the loan book to grow. I’m actually looking for it to shrink a little bit. However, I do believe that they are so well capitalized that they will buy back more shares and that these stocks are cheap and could essentially be a safe haven. You know, because all the big risks are in the private credit portfolios — they’re not sitting on the major bank balance sheets.”
Hardman Johnston Global Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its Q4 2024 investor letter:
“Bank of America Corporation (NYSE:BAC) is the second largest bank in the developed world and operates the third largest branch network in the US. With 86% of revenues coming from the US, the bank is a clear beneficiary of the lower regulatory environment expected from the incoming administration. The company’s business is highly diversified across retail, commercial, wealth management, and investment banking, with significant scale across all verticals. Management believes there is a big opportunity going forward in growing and monetizing its mass retail client base. Wealth is another huge opportunity, with the Merrill Lynch platform enabling customers to make more transactions and purchase additional products. Lastly, Bank of America has an opportunity to increase efficiency through cost reduction and online banking. Our expectation is for the bank’s ROE to move significantly higher, driving EPS growth and higher multiples.”
5. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Wall Street Journal’s Tim Higgins said in a latest program on CNBC that Tesla Inc (NASDAQ:TSLA) market value remains high when compared with peers but the company is facing headwinds amid Elon Musk’s “antics.”
“The value of the company is still dramatically higher than any other automaker out there. There’s still a lot of people out there who believe in this vision that Musk has created, the vision of the future for the car, the vision of the future of the company being in robotics. That’s still a huge gamble. But it seems like the brand is having perhaps its Bud Light moment among Democrats, being turned off by some of his antics. And that’s kind of the question: can he make the bridge to the future while in the inter term really turning some customers off to the idea of buying the sheet metal of today?”
Tesla’s EV sales are falling all over the world as the company faces challenges from competitors. For example, in California, the largest U.S. market for electric vehicle adoption and sales, Tesla sales fell about 12% year over year in 2024, causing its market share to drop from 60.1% in 2023 to 52.5% in 2024. Was it because Californians are buying fewer EVs? No. Californians purchased more than 2 million electric cars during the year, almost double when compared to the past two years.
Things aren’t looking good for Tesla in Europe, either. For example, in Germany, Tesla delivered just 1,429 new cars in February, down 76% from the same month last year. In contrast, battery-electric vehicle (BEV) registrations surged 30.8% during the month.
Tesla Inc’s (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. According to Reuters, Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Polen Focus Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“The largest relative detractors in the quarter were Tesla, Inc. (NASDAQ:TSLA) (not owned), Thermo Fisher Scientific, and Broadcom (not owned). We’ve spoken at length about our rationale for not owning Tesla. The stock enjoyed a 54% return during the quarter, with effectively all of the share price performance strength coming in the post-election period, as the market expressed a positive view on Elon Musk’s prominent role in the incoming Trump administration and its potential implications for Tesla. While we agree this development should be a net positive for Tesla and recognize the company’s interesting future prospects for autonomous driving and humanoid robots, its current valuation demands that shareholders pay primarily for potential innovations that have yet to materialize, with uncertain risks and timelines, presenting a different type of risk profile than we are comfortable with. Today, Tesla is an automobile manufacturer limited to the higher-income segment and is increasingly challenged to sell vehicles when interest rates are not zero. As such, we continue to question the company’s long-term growth profile, its ability to scale a large robotaxi service (which seems to be the source of euphoria in Tesla shares), and its corporate governance.”
