Recession or Not, These 3 Stocks Are Winners

Key Points

• As investors worry about whether there will be a recession in the United States, there are a few stocks that could do well regardless of what happens. 
• These three names have fundamental and financial strengths behind them and strong price action regardless of the market trend.
• Wall Street analysts like them as a safety proposition. Double-digit upside and bearish capitulation show where safety is.

A lot of chatter has been going on around the subject of the U.S. economic situation right now. On one side, some market participants think that the S&P 500 could keep on making new all-time highs, while others believe that a recession is about to unleash a major bear market. Investors can place their bets on whichever camp they believe in, but they must realize that this sets them up for a 50/50 chance of success.

Succeeding at investing has much to do with getting the odds in your favor, so picking winning stocks that could do well, whether the bears or bulls are right, is a victory. In uncertain markets, especially if they end up selling off, surviving and avoiding losses is much better than making an outsized profit that carries an unnecessary amount of risk. Three stocks stand out to offer investors a better risk-to-reward profile in this market.

Characterized as defensives or part of the consumer staples sector, these companies are likely to do well no matter where the entire economy is headed next. Waste Management Inc. NYSE: WM is a play for the ages based on its business model and services offered. Then, investors can get behind one of America’s most reliable grocers, Costco Wholesale Co. NASDAQ: COST, and even insurance and retirement planning provider Prudential Financial Inc. NYSE: PRU.

Waste Management Stock: A Reliable Choice for Investors Regardless of Cycles

No matter where the global economy goes, people will continue to consume basic materials and create waste. This waste will always be either stored or bought by other nations to be recycled. Emerging markets often buy items like plastic and metal waste to lower their cost basis in construction projects and other activities.

This is where Waste Management stock comes into play, and investors should recognize that the stability in this company comes from more than the stock’s low beta of 0.75; it is rooted more in the business fundamentals. Waste Management’s financials show a gross margin of up to 39.1%, which is above most in any industry.

More than that, management is able to reinvest the capital they keep from these high margins and achieve a 14.1% return on invested capital (ROIC) rate. This is important because it drives the long-term compounding effects of any stock’s price.

Leaning on these strengths, Deutsche Bank has set a $241 price target for Waste Management stock, daring it to rally by as much as 15.1% from its current price. Even bearish traders had to step aside for this one, as the stock’s short interest collapsed by 16.5% over the past month alone, a sign of bear capitulation.

Even if the economy ends up in a recession, the stock’s financial strength and low volatility will offer protection throughout a potential downcycle without affecting the company’s operations.

Costco Stock May Be the Go-To Recession Hedge for Consumers and Investors Alike

Strong economies like the one investors experienced in the post-COVID era and even crashes like the financial crisis in 2008 are relatively good for Costco stock. Even during the pandemic crash, Costco stock traded relatively flat and showed nearly no volatility.

Then, the stock nearly doubled since 2021, just like it weathered the 2008 financial crisis in half the time it took the rest of the market. This time, if there is to be a recession, it won’t be any different.

The stock’s low beta of 0.79 gives investors low volatility, but Wall Street analysts have something more to say.

Forecasting up to 10.3% earnings per share (EPS) growth is one thing, but being willing to pay 55.1x the price-to-earnings (P/E) ratio is another. Realizing that the market is willing to overpay for this company tells investors a bit about how other participants feel about the underlying stock. It must have enough quality and safety for this to be the case.

Analysts at BMO Capital decided to boost their price targets for Costco stock from $875 a share to $950 a share, calling for a net upside of 6.7% from today’s prices.

Prudential Financial Stock is a Top Pick for Income and Stability in the Insurance Sector

This insurance provider will likely do well, or even better if a recession hits the United States. People will likely start to protect their assets and retirement income through cash-value life insurance, and that’s where Prudential Financial comes into play.

On the flip side, if the economy keeps on roaring, people with rising equity and investment values might, in turn, try to protect these assets through an insurance policy to guarantee income when in retirement. Either way, investors cannot ignore the fact that this stock offers a payout of $5.2 a share.

This payout translates into a 4.35% dividend yield today, coupled with the 18% upside assigned by analysts at Jefferies Financial Group as recently as June of 2024 through their $141 a share price target on Prudential stock. More than that, here’s a bit of evidence showing bear capitulation.

Over the past month, Prudential stock’s short interest declined by 2.7% and has been on a downtrend since the first quarter of 2024.

Bears selling opened some room for those at Legal & General Group to boost their position by 9.4% over the past quarter, bringing their net investment to $415.1 million today.