Fear of recession is rising amid concern that the Federal Reserve’s interest-rate increases will send the economy under.
The Fed has raised rates 150 basis points since March and has indicated that more is coming. The economy shrank 1.6% annualized in the first quarter, and some experts anticipate a negative number for the second quarter too.
In this environment, you may want stocks that do well during periods of recession. Bank of America strategists created a list of just such small- and mid-cap stocks.
“We screen for Russell 2000 and Russell MidCap stocks which rank best on factors which have historically outperformed downturn/recession regimes,” the strategists wrote in a commentary.
That includes high quality, cash return and low risk.
“Our screen is based on:
- Top quintile by quality
- Bottom quintile by risk
- Returning cash to shareholders (dividend payer or share repurchaser over last 12 months)
- Liquidity (3,000 average daily volume) of at least $20 million.”
The top 10 stocks in the list by market-capitalization, starting with the largest market-cap, are:
- Hershey (HSY), the candy company
- O’Reilly Automotive (ORLY), an auto parts company
- AutoZone (AZO), an auto parts company
- Paychex (PAYX), a human resources company
- Amphenol (APH), an electronic connectors maker
- Brown-Forman, (BF.B), an alcoholic beverage company
- Yum! Brands (YUM), the restaurant company which owns Taco Bell, Pizza Hut, and KFC
- ResMed (RMD), a medical device company
- AmerisourceBergen (ABC), a drug wholesaler
- Otis Worldwide (OTIS), an elevator maker.
Morningstar’s Take on Hershey
Morningstar analyst Erin Lash assigns the company a wide moat and puts fair value for the stock at $156. It recently traded at $218.
“Even in the face of competitive and macroeconomic headwinds, Hershey's dominance in U.S. confectionery is undeniable (46% share of the chocolate aisle, versus just 1% for private label…),” Lash wrote in a commentary.
“But more so, we applaud the strategic focus CEO Michele Buck has brought to helm--ramping up investments in its core domestic brands while pulling back international (high-single-digit percentage of total sales) spending.
Morningstar’s Take on O’Reilly Automotive
Morningstar analyst Zain Akbari gives the company a narrow moat and puts fair value for the stock at $580. It recently traded at $628.
“As the most fully realized exemplar of the dual-market (commercial and do-it-yourself) approach to auto-part retail, O’Reilly has capitalized on favorable industry dynamics to achieve strong returns,” he wrote in a commentary.
“The firm has profited from increases in miles driven and average vehicle age as well as the benefits of its expansive distribution network in ensuring part availability.”
