Many economists and investors believe the Federal Reserve’s interest-rate increases will produce a hard landing for the economy – a recession.
Economists at Goldman Sachs predict a soft landing. But if there is a hard landing, they expect the S&P 500 to fall to 3,150, a 21% drop from the recent level of 3,988.
With that in mind, Goldman Sachs strategists put together a list of 36 stocks that should benefit from a hard landing.
The roster consists of large-cap, profitable Russell 1000 companies that pay dividends and are in a defensive industry. The stocks trade at a forward price-earnings ratio below their five-year median and have an Altman z-score above the Russell 1000 median.
The Altman Z-score is a formula for determining whether a company is headed for bankruptcy. The higher the score, the less chance of bankruptcy.
The list is heavy on software, food & beverage, and tobacco stocks. Stocks on the list have a median market-cap of $37 billion and a median forward P-E ratio of 22 versus a five-year median of 24.
Here are 10 stocks on the roster, grouped by industry.
- Activision Blizzard ATVI, the video game publisher
- Home Depot HD, the home improvement retailer
- Costco COST, the food and staples retailer
- Kroger KR, the grocery-store chain
- Altria MO, the tobacco company
- Tyson Foods TSN, the chicken/beef producer
- Pfizer PFE, the pharmaceutical giant
- Danaher DHR, a scientific instrument maker
- Microsoft MSFT, the software titan
- Visa V, the credit card colossus
Costco: Morningstar analyst Zain Akbari assigns the company a wide moat (durable competitive advantage) and puts fair value for the stock at $476. It recently traded at $487.
“With a besotted member base, low-frills warehouses, and growth opportunities at home and abroad, we expect Costco’s durable competitive advantages to lead to consistent, strong performance despite retail’s upheaval,” he wrote in a commentary.
“The competitive environment is intense and becoming more challenging…, but we believe the values that Costco offers (driven by cost leverage, procurement strength, and top-class store efficiency) should allow it to keep traffic high.”
Further, “with ample opportunity to expand globally, we expect Costco to post consistently strong returns even as it grows,” Akbari said. But he warned against buying at the stock’s current lofty level.
Microsoft: Morningstar analyst Dan Romanoff gives the company a wide moat and puts fair value for the stock at $320. It recently traded at $239.
“Microsoft reported solid fiscal first-quarter 2023 results [in October], including revenue and [profit] results ahead of the guidance midpoints,” he wrote in a commentary.
“The outlook, however, was worse than our below-consensus model was contemplating. Macro pressures continue to weigh on the company’s performance.”
But, “we continue to find encouragement in Azure [Microsoft’s cloud offering], Office E5 migration, and traction with the Power platform for long-term value creation,” Romanoff said. To be sure, “near-term pressures will not be exhausted within the next quarter.”
Still, “it is premature to say the Azure growth story is over despite the slowdown,” he said
The author of this story owns shares of Pfizer and Microsoft.
