In this article, we will take a detailed look at the13 Best Stocks To Buy Before Recessions. For a quick overview of such stocks, read our article 5 Best Stocks To Buy Before Recessions.
The hard landing versus soft landing debate is back in the limelight amid latest data points showing the stubbornness of inflation and warnings from some analysts that amid the fast depleting household savings in the US, the economy might not be able to endure the pressures like it did last year.
Hard Landing Probability is Rising
A Reuters report recently said that in the options market bets are rising for a hard landing scenario. The report said in the options market there has been a rise in demand for so-called "receiver swaptions," a type of trade that pays off when interest rates fall. The Reuters report also quoted Bruno Braizinha, interest rates strategist at BoFA Securities in New York, who said that risks are "roughly balanced between a hard landing and no landing" from a macroeconomic perspective. However, the analyst reportedly said the options market bets are now tilting towards a hard landing scenario.
"But the options market is pricing those probabilities more skewed towards a hard landing," Braizinha said.
Andrew Hollenhorst, Citi chief U.S. economist, recently said while talking to CNBC that he does not see a soft landing scenario in the data. The analyst pointed to a decline in retail sales in the US and high inflation numbers for this thesis. Hollenhorst said while the US economy was in a strong position near the end of 2023, latest data is showing signs of troubles to come. He said the latest jobs report shows a decline in the number of hours people are working and a dip in full-time jobs. He also sees a decline in labor market jobs like restaurants, which he believes is an important indicator for the economy.
Methodology
In this context, it might be the right time to see which recession-proof stocks smart money investors are piling into to weather the coming storm. Stocks from sectors like healthcare, consumer defensive and utilities perform well during recessions. For this article we first listed down holdings of key ETFs that constitute recession-proof portfolios like Goldman Sachs' Defensive Equity ETF, Invesco Defensive Equity ETF, The Health Care Select Sector SPDR Fund (XLV), The Utilities Select Sector SPDR Fund (XLU), etc. and gauged hedge fund sentiment for these holdings. From these stocks we picked 13 stocks with the highest number of hedge fund investors. We tried to pick best stocks to buy before recessions from different sectors and industries to make our list more diversified.
Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
AbbVie Inc (NYSE:ABBV) is a text-book name to buy for recessions and troubled economic times. The stock has a dividend yield of about 3.5% as of February 8. The pharmaceutical company AbbVie Inc's (NYSE:ABBV) shares have gained about 21% over the past one year. AbbVie Inc (NYSE:ABBV) has decades of consistent dividend increases under its belt.
As of the end of the third quarter of 2023, 73 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in AbbVie Inc (NYSE:ABBV) . The most notable stakeholder of AbbVie Inc (NYSE:ABBV) was Paul Marshall and Ian Wace's Marshall Wace LLP which owns a $582 million stake in AbbVie Inc (NYSE:ABBV).
Carillon Eagle Mid Cap Growth Fund made the following comment about AbbVie Inc. (NYSE:ABBV) in its Q3 2023 investor letter:
“AbbVie Inc. (NYSE:ABBV) reported strong, broad-based second-quarter performance that exceeded analysts’ expectations. The company’s raised guidance was a nice recovery after its mildly disappointing first-quarter report.”
Cigna Group (NYSE:CI) is another name in the healthcare industry that is among the favorites of smart money managers when economic downturns begin. BofA recently said in its report that it believes market "narrowness" will shift and returns will spread to other companies as well. It is bullish on several companies, including Cigna Group (NYSE:CI), for which it has a $370 price target. This price target shows a strong upside potential to the stock's current price of $341.
A total of 74 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Cigna Group (NYSE:CI).
Here is what Davis New York Venture Fund has to say about The Cigna Group (NYSE:CI) in its Q3 2023 investor letter:
“In the attractive healthcare sector, we look beyond the obvious to identify businesses that simultaneously have exposure to this growth industry and also trade at low prices. We’re especially drawn to companies like Cigna Group, whose products or services play a part in helping to mitigate healthcare’s constantly rising costs. The healthcare industry has been a growing part of the U.S. economy for decades. As a result, many companies in this sector trade at high valuations reflecting their robust but well-known reputation for growth. For value-conscious investors like us, investing in healthcare requires looking beyond the obvious to identify businesses that have exposure to this growth industry but which trade at low prices. Furthermore, recognizing that the constantly rising cost of healthcare cannot go on forever, we have been particularly drawn to companies whose products or services play some role in managing or reducing the cost of care. As a result, we have positions in Cigna Group, a well-regarded provider of managed care.
Procter & Gamble Co (NYSE:PG) is one of the most popular defensive stocks both retail and institutional investors like. Procter & Gamble Co's (NYSE:PG) consistent dividend increases for over six decades and its diversified business model make it an ideal stock to own before or during recessions.
A total of 75 hedge funds in Insider Monkey's database of 910 hedge funds had stakes in Procter & Gamble Co (NYSE:PG). The most significant stake in Procter & Gamble Co (NYSE:PG) is owned by Ken Fisher's Fisher Asset Management which owns a $1.5 billion stake in Procter & Gamble Co (NYSE:PG).
Madison Sustainable Equity Fund stated the following regarding The Procter & Gamble Company (NYSE:PG) in its fourth quarter 2023 investor letter:
“We sold The Procter & Gamble Company (NYSE:PG). After two years of strong pricing growth, the company is facing slower market growth in both the US and Europe. China, the company’s second largest individual market, is facing a protracted downturn with poor visibility on when fundamentals will improve.”
Glucose monitoring systems company DexCom Inc (NASDAQ:DXCM) is a notable stock to buy before recessions because the demand of DexCom Inc's (NASDAQ:DXCM) products is relatively safe from the effects of economic downturns.
In December, UBS published its list of top global stocks. DexCom Inc (NASDAQ:DXCM) was part of the list.
A total of 78 hedge funds tracked by Insider Monkey had stakes in DexCom Inc (NASDAQ:DXCM). The biggest stake in DexCom Inc (NASDAQ:DXCM) is owned by Israel Englander's Millennium Management which owns a $259 million stake in DexCom Inc (NASDAQ:DXCM).
“DexCom, Inc. (NASDAQ:DXCM) is a developer and manufacturer of continuous glucose monitors (CGMs). CGMs are currently used by Type 1 and insulin-intensive Type 2 diabetics to control blood glucose levels more effectively than intermittent fi nger sticks. The company’s stock declined in 2023 due to investor concerns surrounding the potential impact that glucagon-like peptide 1 (GLP-1) medications could have on demand for their products. Contrary to initial belief, internal analysis uncovered that patients taking GLP-1s used CGMs at twice the rate of patients not on GLP-1s. This, and the company’s excellent results for the third quarter, caused the stock price to rebound significantly.”
Intuitive Surgical, Inc. (NASDAQ:ISRG) has already defied all fears and downturns over the past few months as the stock is up about 57% over the past one year.
Intuitive Surgical, Inc. (NASDAQ:ISRG) is working on robotic products that are used in surgeries.
Insider Monkey's database shows that 78 hedge funds tracked by Insider Monkey were long Intuitive Surgical, Inc. (NASDAQ:ISRG) as of the end of the third quarter.
“Additional tailwinds to performance came from robotic surgical system pioneer Intuitive Surgical, Inc. (NASDAQ:ISRG). We believe Intuitive Surgical will continue to innovate and launch new products that enhance surgical outcomes, and we think the company has a long runway for growth.
Walmart Inc (NYSE:WMT) is a classic name to own before or during recessions. Everyone needs to buy groceries and essentials and Walmart Inc (NYSE:WMT) is a name that comes to mind when you think of buying groceries. As of February 2023 Walmart Inc (NYSE:WMT) is a dividend kind, having raised its payouts consistently for the past 50 years .
Earlier this month, CFRA published its list of 5-star rated dividend aristocrat stocks. Walmart Inc (NYSE:WMT) made it to the list.
A total of 80 hedge funds tracked by Insider Monkey had stakes in Walmart Inc (NYSE:WMT).
With decades of dividend increases and a strong and diversified business model, Johnson & Johnson (NYSE:JNJ) ranks seventh in our list of the best stocks to buy before recessions. BofA Securities recently published a list of least-shorted stocks. Johnson & Johnson (NYSE:JNJ) made it to the list.
A total of 84 hedge funds in Insider Monkey's database of 910 hedge funds had stakes in Johnson & Johnson (NYSE:JNJ).
ClearBridge Large Cap Value Strategy made the following comment about Johnson & Johnson (NYSE:JNJ) in its Q3 2023 investor letter:
“The health care space provided some opportunities in the quarter, as we increased our exposure to medical device company Becton, Dickinson as well as large cap pharmaceutical company Johnson & Johnson (NYSE:JNJ). Johnson & Johnson recently spun out its consumer health care business, becoming a more focused yet broadly diversified pharmaceutical and medtech company.”
UnitedHealth Group Inc (NYSE:UNH) is one of the top healthcare stocks to buy and hold for recessions. Recently, BofA set a price target of $675 for UnitedHealth Group Inc (NYSE:UNH) stock. This price target shows a huge upside potential compared to the current stock price of $519.
As of the end of the third quarter of 2023, 104 hedge funds tracked by Insider Monkey had stakes in UnitedHealth Group Inc (NYSE:UNH).
“UnitedHealth Group Incorporated (NYSE:UNH) contributed less to portfolio performance than the majority of our holdings during the quarter. The Company reported double-digit revenue, operating earnings and earnings per share growth during their third quarter. The Company has been able to adjust pricing in its health care segment to keep up with medical cost inflation while working with its Optum units to deliver more value-based care that replaces the traditional fee for service health care model. Value-based care is a sensible, long-term growth opportunity for the Company to pursue and also differentiates it from the vast majority of healthcare providers, particularly as it relates to Medicare patients. For example, the Company’s value-based care programs provide more preventative care opportunities and home-based care visits for patients which helps save the U.S. healthcare system billions in unnecessary spending while also providing patients with better outcomes, as diseases and behaviors are caught or corrected at earlier stages. The Company has invested in several core assets over many years to execute this value-based strategy and it will become the standard of care as the proportion of people in the U.S. with healthcare insurance coverage continues to reach new highs.”
