These are six high-tech stocks to buy that can outperform in a recession. Typically these stocks will have low price-earnings multiples, feature lots of free cash flow (FCF) and also pay dividends. Moreover, they also tend to have large share buyback programs as a result of their FCF generation.
As a result, their performance will not be as bad on the downside in a recession. They will also rebound more quickly when there is a possibility of improving economic conditions ahead.
The point is not that these stocks will go up during a recession. It’s just that they will perform better than the average stock on the downside, as most stocks tend to decline during recessions.
Moreover, the fact that these high-tech companies pay a dividend helps the investor have less of a negative total return.
Let’s dive in and look at these stocks.
| KT | KT Corporation | $14.13 |
| NRG | NRG Energy | $38.84 |
| MSFT | Microsoft | $259.58 |
| AVGO | Broadcom | $477.84 |
| VZ | Verizon | $51.64 |
| QCOM | Qualcomm | $123.53 |
KT Corp (KT)
Dividend Yield: 5.2%
A South Korean telecom and broadband provider, KT Corporation (NYSE:KT) is cheap at just 6.3x the earnings per share (EPS) analysts forecast for KT stock for this year. Analysts expect slightly higher earnings for the following year, so its 2023 valuation is even lower on a forward basis.
The company’s dividend is paid once a year and was last set at about 75 cents a share. At $14.13 at the close on June 30, this gives KT stock a dividend yield of 5.2%.
Moreover, it has paid a dividend each year for the past six years.
Its most recent dividend was declared on April 27. It does not go ex-dividend again until Dec. 30, 2022. But the dividend is declared in May 2023. So, this is one of the rare cases where you have to have owned the stock months before the dividend is declared. Usually, a dividend is declared and then some short time later it goes ex-dividend.
That means it is better to buy the stock when it is cheap, like now. At least then you know you will receive the dividend if it is held until the end of the year.
NRG Energy (NRG)
Dividend Yield: 3.6%
NRG Energy (NYSE:NRG) is an integrated power company based in Houston, TX, that produces electricity. It has about 6 million customers.
The stock is cheap at just 9.8x expected EPS for 2022 and 8.2x for 2023. This is based on four analysts’ forecasts of 20% growth in the company’s earnings to $4.76 per share by the end of 2023.
That is more than enough to cover the $1.40 dividend it is paying now. That gives the stock a dividend yield of 3.6% at $38.84 per share as of the close on June 30. Moreover, NRG Energy has paid dividends consistently over the past nine years, and raised the dividend each of the past three years.
As a result, the stock is down just 12% YTD, around half the rate of decline of the market so far.
Moreover, NRG Energy has started buying back its shares. Last quarter it spent $188 million on share repurchases.
At that rate, it would reduce its shares by 8.2% over the next year, assuming the stock stayed level. This could allow the company to keep raising its dividend per share, as there would be fewer shares outstanding.
That makes it one of the best high-tech stocks to buy to outperform in a recession.
Microsoft (MSFT)
Dividend Yield: 1%
Microsoft (NASDAQ:MSFT) is one of the best high-tech stocks to buy for investors interested in a stock that can outperform during a recession. A major reason this stock should be able to achieve that feat is that MSFT stock is now trading well below its historical valuation metric averages.
For example, its forward earnings multiple of 23.8 for the year to June 2023 is now well below its historical average. Morningstar indicates that the forward P/E average has been 28x over the past five years.
Right now, the company’s 62-cent quarterly dividend is likely to be raised in September. That will raise the annual dividend to over $2.48, which at Friday’s closing price of $259.58, gives MSFT stock a dividend yield of roughly 1%.
Moreover, analysts now forecast earnings will rise 14% over the next year to June 2023.
On top of this, Microsoft has a very strong buyback program. Last quarter alone it repurchased $8.82 billion of its shares, or over $35 billion on a run-rate basis. That works out to 1.8% of its existing market cap. This will help increase the dividend per share over time.
These factors make it one of the best high-tech stocks to buy in a recession if you want to outperform other stocks going forward.
Broadcom (AVGO)
Dividend Yield: 3.4%
Broadcom (NASDAQ:AVGO) develops semiconductor chips and associated software. It is forecast to produce 8.8% higher earnings at $40.24 per share for the year ending Oct. 2023. That puts it on a forward P/E multiple of just 11.9x.
Broadcom pays a dividend of $16.40 per share annually, which is just 44.4% of its forecast 2022 earnings of $36.97. That shows that the company can easily afford to keep paying this dividend, recession or not.
In fact, every year in the past 11 years, Broadcom has raised its dividend.
AVGO stock, trading at $477.84 at the close on June 30, has a dividend yield of 3.4%. This is also slightly higher than its four-year average of 3.2%, according to Seeking Alpha. That implies it could move higher.
Moreover, Broadcom is buying back a good deal of its shares. Last quarter alone, it spent $3.29 billion on buybacks. That works out to $13.16 billion annually or 6.82% of its market cap. This makes it one of the best high-tech stocks to buy.
Verizon Communications (VZ)
Dividend Yield: 5%
Verizon Communications Inc. (NYSE:VZ) is one of the largest telecom operators in the U.S. It is forecast to produce 3% earnings growth to $5.54 per share for the year ending 2023. At $51.64 on June 30, the stock is on a forward multiple of just 9.3x for 2023.
This is significantly below its five-year forward P/E average of 11.39x based on Morningstar’s valuation page. So, despite the low growth prospects, the market is not overvaluing the stock.
Moreover, Verizon pays a robust 64-cent dividend, and, in fact, has paid this dividend out for the past four quarters. That works out to an annual dividend payment of $2.56 per share. That gives the stock a dividend yield of 5%.
But it is likely to be higher soon, as the quarterly dividend is likely to be raised in early September, when it is scheduled to next declare its dividend. After all, it has raised its dividend every four quarters over the past 18 years. So, for practical purposes, the yield going forward is likely over 5%.
Morningstar reports that its average dividend yield over the past five years has been 4.47%. That implies the stock could rise to $57.27 (i.e., $2.56/0.0447). That represents a gain of 10.9% from here.
One point against the stock is that so far, it is not buying back its shares. That typically helps high-tech stocks move higher.
Qualcomm Inc (QCOM)
Dividend Yield: 2.4%
Qualcomm (NASDAQ:QCOM) is a wireless technology and patent management company. It is forecast to raise earnings by 4.8% to $13.18 per share. That puts the stock on a forward P/E multiple of 9.37x. That is well below its average over the past five years of 16.6x, according to Morningstar.
Moreover, the company’s dividend of $3, which gives it a 2.4% yield, is well-afforded by its earnings. The company is also pursuing a very strong buyback program.
Last quarter alone it spent over $1 billion on share repurchases, which puts it at a run rate of over $4 billion annually. That works out to 2.89% of its present market cap if the stock stays level at today’s market cap.
This makes Qualcomm one of the best high-tech stocks to buy now to outperform in 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.
