According to leading banks, the evidence of an upcoming downturn is growing. HSBC, Citigroup and Morgan Stanley have all noted a trading pattern breakdown — a signal to get out soon — according to Bloomberg.
Morgan Stanley’s chief strategist Andrew Sheets says “low macro and micro correlations confirm the idea that we’re in a late-cycle environment, and it’s no accident that the last time we saw readings this low was 2005-07.”
In this environment, investors need to find the toughest stocks that can withstand a downward shift in the market. I looked for five stocks that all have a ‘Strong Buy’ rating from the Street’s best analysts. These are the analysts with the highest success rate and average return according to leading financial accountability engine TipRanks.
Following only the top analysts provides a degree of reassurance in volatile times that you can trust the analyst you are following. For example, I checked that the price target from top analysts provided compelling upside for the stock in question. At the same time, I also looked specifically for stocks that have the capability to keep outperforming in a downturn. This can be because of the nature of the industry, say healthcare, or because of the glowing fundamentals of the stock itself.
Now let’s dig down further into the five toughest stocks to buy to withstand a downturn:
Toughest Stocks to Withstand a Downturn: Celgene Corporation (CELG)
Celgene Corporation (NASDAQ:CELG) — the inclusion of this biopharma in a tough stocks list right now may come as something of a surprise.
Only a few days ago, the Food and Drug Administration announced that it is placing five trials on partial clinical hold and one trial on full clinical hold in the Celgene Fusion program. The trials are testing AstraZeneca plc (ADR)’s (NYSE:AZN) Imfinzi (durvalumab) for the treatment of blood cancers.
But even with this setback, CELG remains a ‘Strong Buy’ stock with over 8% upside potential from the current share price. The stock provides strong growth potential at an inexpensive price. This year alone, Celgene is predicting sales will hit the $13 billion mark, rising to $21 billion over the next three years. It also has the support of an impressive pipeline of oncology products covering over fifty compounds as well as key catalyst ozanimod for multiple sclerosis.
Top Oppenheimer analyst Leah R Cann is still bullish on CELG’s outlook. He reiterated his buy rating on Sept. 7 with a $175 price target (24% upside). Crucially, his price target does not factor in any projections for the drug trials on hold/partial hold. Instead Cann tells investors:
“Today’s announcement has no impact to our outlook. Should these studies demonstrate benefit in later, registrational studies, they would be growth drivers for Celgene in the post 2021 setting. We believe these holds are due to caution on the part of FDA, resulting from recent issues with other checkpoint inhibitors not associated with Celgene, and the Celgene studies will likely resume.”
Toughest Stocks to Withstand a Downturn: Alibaba (BABA)
Yes, Chinese giant Alibaba Group Holding Ltd (NYSE:BABA) is a consumer stock. And yes, traditionally consumer stocks are hit hard during a downturn.
But if there is one tough consumer stock out there, it’s Alibaba. Indeed, even when China’s economy slowed down during 2016, Alibaba revenues continued to soar. BABA benefits both from the increase in digital shopping, and from selling some of the cheapest products in the market.
This model has certainly won the Street’s backing. In the last three months, BABA has received an impressive 12 back-to-back buy ratings from top analysts. No sell or hold ratings. These analysts predict that the stock has further upside potential of 8.5%.
MKM Partners’ Rob Sanderson goes one step further. He says BABA can reach $220 as it has the best fundamentals out of all the internet mega caps. His $43 price target increase is a reflection of “50 percent organic growth in the segment, strong secular trends, dominant market position and [a] 60-percent margin while funding significant investments.”
Toughest Stocks to Withstand a Downturn: Idexx Laboratories (IDXX)
You may not know it but The Pet Passion index, Motif Investing’s tracker of pet-related companies, returned 19% from August 2016 to August 2017.
In contrast, the S&P 500 grew by 8.5% in the same time period. And this trend isn’t just for the good times. In previous recessions, pet spending continued to rise even while overall consumer spending fell.
One key company to benefit from the influx of money is Idexx Laboratories, Inc. (NASDAQ:IDXX) a veterinary diagnostics company. It has a ‘Strong Buy’ analyst consensus rating and upside potential of 13% from the current share price. Merrill Lynch’s Derik de Bruin recently upgraded the stock from hold to buy with a $175 price target. If Idexx is a dog, it would be a ‘top dog’ says de Bruin who likes IDXX’s long-term target of 10% organic revenue growth.
Meanwhile, five-star Canaccord Genuity analyst Mark Massaro applauds the stock’s “multi-pronged growth drivers.” He comments “We continue to believe that IDXX’ positioning is dominant and hardly rivaled, in the backdrop of robust global vet demand that we think lasts for at least another two years.” Massaro has a $180 price target on the stock (13% upside).
Toughest Stocks to Withstand a Downturn: Mastercard (MA)
Payment processing giant Mastercard Inc (NYSE:MA) is one of the strongest payment companies out there. As the world increasingly moves away from cash and towards digital payments, MA stands to reap the rewards.
Shares have been rising steadily over the year and they are now trading around record highs of $142. Meanwhile the stock has an impressive ‘Strong Buy’ analyst consensus rating. In the last three months, 10 top analysts have published buy ratings on the stock with just one hold rating.
Encouragingly, the most bullish analyst on the stock is Nomura’s Bill Carcache. And Carcache has one of the best track records with his Mastercard ratings. Across his 17 MA ratings, he has a 94% success rate and 30.5% average return. He believes that the stock can soar all the way to $163 — 14.4% upside from the current share price.
According to Carcache, Mastercard’s $920 million acquisition of London-based VocaLink will double the company’s total market opportunity. As well as processing about 90% of all U.K. salaries, investors are also keeping an eye on VocaLink’s immediate ACH payments services. Analysts believe the service, scheduled to go live in the U.S. this year, has big global potential. By continuing to gain market share, MA also ensures that it can keep growing even if the payment space slows down.
Interestingly, if we flick through the stock’s analytics we can see further evidence that the stock has strong market support. For example, hedge fund managers have a ‘Very Positive’ sentiment on Mastercard with big-name investors flocking to the stock. See, for example, Steve Mandel and Tom Russo who have MA positions worth $1.16 billion and $563 million respectively.
Toughest Stocks to Withstand a Downturn: Incyte Corporation (INCY)
Healthcare stocks are always a good pick in a downturn and biopharma Incyte Corporation (NASDAQ:INCY) has had a phenomenal year.
Shares in INCY have gained over $40 in the year, and the stock is now trading at nearly $120. The good news is that the Street predicts that Incyte still has serious growth potential. Top analysts have an average analyst price target on the stock of $150. This is just over 22% from the current share price. We can also see how, in the last three months, six out of seven top analysts have a bullish sentiment on INCY’s outlook.
Take, for example, five-star BMO Capital analyst Ian Somaiya. He reiterated his INCY buy rating on Sept. 11 with a $163 price target (32% upside potential). Somaiya reviewed the results of a trial of Incyte’s epacadostat, its selective IDO1 enzyme inhibitor, in combination with Merck & Co.,Inc.’s (NYSE:MRK) Keytruda, to treat advanced melanoma. He says the promising results “assures its commercial success.”
“We are adding significantly to the efficacy profile of Keytruda, but we are not significantly adding to the toxicity burden. That seems to be the takeaway,” an Incyte spokesman said. Keytruda recorded worldwide sales of $1.5 billion in the first half of the year.
And it isn’t just the Street that is optimistic on INCY. Incyte has the thumbs up from hedge funds, financial bloggers and corporate insiders. For example, in the last five months there have been three insider buy transactions and no insider sales. And if this wasn’t enough, the stock also has a Strong Positive news sentiment on the back of the trial data release.
Which stocks are the top 25 analysts recommending right now? Find out here.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of 4,500 analysts, 5,000 financial bloggers and even 37,000 corporate insiders. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.