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6 High-Quality Stocks to Buy to Ride Out Any Recession

  • These are six high-quality stocks to buy for a recession as there is a high demand for their products and/or services and they may have other defensive values, such as a high and sustainable dividend yields.
  • Tenet Healthcare (THC) – This hospital, ambulance, and pharmacy company stock has taken a huge hit. But the company’s revenue is forecast to rise 5.5% in 2023 and earnings by 17.7%. This puts the stock on a very low price-to-sales multiple of just 0.27x and its P/E at just 7.0x for 2023.
  • Hanesbrands (HBI) – This brand-name apparel company makes innerwear and activewear basic clothes for men, women and children. The stock is super cheap, but revenue is still forecast to rise 3.1% and EPS is expected to grow 10% to 2023. That puts the stock at just 5.6x earnings. Combined with its 5.96% dividend yield, this stock can withstand a recession.
  • Qualcomm (QCOM) – This wireless technology and patent management company will post modest revenue and earnings growth over the next year, but trades for less than 10x earnings. With its 2.5% dividend yield and strong buyback program, expect to see QCOM stock higher over the next year.
  • NRG Energy (NRG): This Texas-based electric utility has an attractive dividend yield of 3.85% and a low payout ratio of just 35.3% for 2022. Moreover, earnings are growing and its P/E ratio is below 10x (2022) and 8x for 2023.
  • Coca-Cola (KO) – Coke’s shipment volumes, revenue, and earnings will likely rebound when the recession is seen as abating around the world. That will make KO stock one of the first stocks to buy during a recession.
  • Hewlett Packard Enterprise (HPE) – This enterprise software company is forecast to show modest revenue and earnings growth this year and next. As a result, the stock has a modest valuation of just 6.5x earnings this year and 6.1x next. Along with its 3.41% dividend yield, this makes HPE stock a favorite of value investors and also likely to move higher over the next 12 months.
Stocks to buy - 6 High-Quality Stocks to Buy to Ride Out Any Recession

Source: eamesBot / Shutterstock.com

Today, I have chosen six high-quality stocks to buy for a recession. There is a high level of demand for their products and/or services and they may have other defensive values, such as a high and sustainable dividend yields.

It is becoming more clear that this potential upcoming recession may not impact businesses as much as consumers. For example, a major cause for the recession seems to be high inflation. That effectively lowers the real income of consumers as their wages may not be rising as fast.

But businesses have the ability to raise their prices to cover the inflationary impact on their costs. Therefore, businesses that have a high demand for their products or are fundamentally necessary can last through a recession. This includes software and enterprise cloud companies, energy companies, utilities, basic food producers, and some brand names companies.

Let’s dive in and look at these stocks to buy:

Ticker Company Price
THC Tenet Healthcare Corporation $51.75
HBI Hanesbrands Inc. $10.27
QCOM Qualcomm Incorporated $125.16
NRG NRG Energy, Inc. $37.05
KO The Coca-Cola COmpany $60.17
HPE Hewlett Packard Enterprise Company $13.88

Stocks to Buy: Tenet Healthcare (THC)

Healthcare professional in green scrubs standing with arms crossed.

Source: Shutterstock

  • Market cap: $5.7 billion

Tenet Healthcare Corp (NYSE:THC) is a hospital, ambulance, and pharmacy company with growing revenue and earnings. For example, its revenue is forecast to rise 5.5% in 2023 from $19.8 billion in 2022 to $21 billion in 2023.

Moreover, earnings per share (EPS) is forecast to grow by 17.7% from $6.45 per share to $7.59 in 2023. So far, the company does not pay a dividend, but it could, as the company produces positive free cash flow (FCF). Last quarter, it made $74 million in FCF, which could have been used to pay a dividend or buy back stock.

So far this year, THC stock has taken a huge hit, down 35% year-to-date (YTD) to $52.95 as of Jun. 17. It ended last year at $81.69.

This means THC stock has a very low price-to-sales multiple of just 0.27x for 2023. Moreover, its price-to-earnings (P/E) ratio is just 7x for 2023. That makes it one of the best stocks to buy for a recession.

Hanesbrands (HBI)

HanesBrands (HBI) logo on a storefront during daylight

Source: Helen89 / Shutterstock.com

  • Market Cap: $3.51 billion

Hanesbrands (NYSE:HBI) makes underwear, innerwear, and activewear basic clothes for men, women and children. Revenue is forecast to rise 3.1% from $7.1 billion to $7.23 billion in 2023. Everyone needs underwear, even during a recession.

Moreover, its EPS is expected to grow 10% by 2023. That puts the stock at just 5.6x earnings. Combined with its 5.96% dividend yield, this stock can withstand a recession.

Hanesbrands has been paying the same 15 cent quarterly dividend — which adds up to 60 cents annually — since the beginning of 2017. The dividend costs $52 million quarterly and normally it should be able to cover this.

This past quarter, there was a major uptick in its inventory balance, which led to negative FCF. Assuming the retailer can get this under control, the dividend can continue to be paid. It also explains why the stock is so cheap.

Stocks to Buy: Qualcomm (QCOM)

Qualcomm (QCOM) logo on the side of a building in San Jose, CA.

Source: jejim / Shutterstock.com

  • Market Cap: $135.5 billion

Qualcomm (NASDAQ:QCOM) is a wireless technology and patent management company that will post modest revenue and earnings growth over the next year. For example, earnings are forecast to rise by 4.85% to $13.20 for the fiscal year ending September 2023 after rising 46.8% forecast for this year to September 2022. This is based on the average of 28 analysts surveyed by Seeking Alpha.

At $120.99 as of Jun. 17, QCOM is below 10x earnings for both 2022 and 2023. It’s one of the best stocks to buy for a recession. Moreover, Qualcomm generates huge FCF. That covers its 2.5% dividend yield and its large share buybacks.

For example, in the first quarter, its FCF was over $2.2 billion. It used $1 billion of that to repurchase its shares. That works out to an annual rate of over $4.1 billion, or about 3% of its stock market value. This will help the stock move higher during a recession.

NRG Energy (NRG)

Close up of NRG logo on website against blurred background.

Source: Casimiro PT / Shutterstock.com

  • Market Cap: $8.62 billion

NRG Energy Corp (NYSE:NRG) is an integrated, Houston-based electric power generator. Analysts expect this electric utility to grow 20% for the year ending 2023 to $4.76 per share. That puts the stock, at $36.33 as of Jun. 17, at just 7.6x. This is very cheap for an electric utility

Moreover, it has an attractive dividend yield of 3.85%, given its dividend of $1.40 per share. This also means its dividends are just 35.3% of earnings, ensuring security for the dividend payments. It has been raising its dividend each year for the past three years.

In addition, NRG produces a huge amount of FCF. For example, last quarter it made over $1.676 billion in cash flow from operations. It used just $85 million of that for dividends and even spent $188 million on share buybacks. That works out to $752 million over 12 months.

This represents a huge 7.8% of its market value. So, between the dividend yield and buyback yield, over 11% of the market cap is returned to shareholders annually. That makes it one of the best stocks to buy for a recession.

Stocks to Buy: The Coca-Cola Company (KO)

Source: FoodAndPhoto / Shutterstock.com

  • Market Cap: $257.6 billion

Coca-Cola (NYSE:KO) is the ultimate brand name icon company. Revenue and earnings are forecast to grow incrementally from $41.93 billion in 2022 to $44.05 billion in 2023. However, earnings are slated to grow 7.3% from $2.47 in 2022 and $2.65 in 2023.

This puts KO stock on a forward P/E multiple of just 22 times. This is below the historical average of 23.35x for the past five years. This implies that KO stock is now cheap.

People will still drink Coca-Cola during a recession. Coke volumes will slowly drift higher. The stock’s valuation is also likely to be rated higher. This makes it one of the best stocks to buy for a recession.

Stocks to Buy: Hewlett Packard Enterprise Company (HPE)

Picture of Hewlett Packard Enterprise offices in Palo Alto, CA. HPE stock.

Source: Sundry Photography / Shutterstock

  • Market Cap: $17.44 billion

Hewlett Packard Enterprise Company (NYSE:HPE) is an enterprise software company forecast to show modest revenue and earnings growth this year (ending Oct. 30, 2022) and next.

For example, sales are forecast to rise 2.8% from $28.3 billion to $29.1 billion. In addition, EPS is forecast to grow 7.4% from $2.03 per share to $2.18 by October 2023.

As a result, HPE stock has a modest valuation of just 6.9x earnings this year and 6.1x next. That is very cheap for such a large and profitable software company.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.

In addition, with its 3.6% dividend yield, HPE stock is a favorite of value investors. This makes it one of the best stocks to buy for a recession.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/06/6-high-quality-stocks-to-buy-for-a-recession/.

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