5 stocks to buy for the next recession

  • Each of these stocks to buy are low beta stocks with attractive dividend yields to help weather a recession.
  • Astra Zeneca (AZN): Strong growth visibility with a broad portfolio of drug candidates. A good dividend yield of 3.1%.
  • walmart (WMT): The focus on consumer spending to drive GDP growth will continue to benefit the company. Strong cash flow for dividends and share buyback.
  • AT&T (J): Mobility segment likely to create value with continued investment in the 5G and fiber division. Deleveraging is another key positive catalyst.
  • Lockheed Martin (LMT): Defense spending is likely to remain high even in a recession. A strong order book provides clear cash flow visibility.
  • Johnson & Johnson (JNJ): The potential spin-off of the consumer healthcare division is a positive catalyst. Healthy cash flow and dividends.

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The recent correction in equities presented investors with a good opportunity to buy high value stocks. Among growth and dividend stocks, there are several stocks to buy on the market’s overreaction. However, investors should consider some portfolio reshuffling with macro headwinds. In my view, it makes sense to overweight low-beta stocks over the next few quarters.

It should be noted that various factors triggered a strong correction. Inflation fears and restrictive monetary policies seem to be among the main factors. However, there is also a growing possibility of a recession, which has heightened investor concerns.

It seems likely that the United States is heading for a recession in 2023. Needless to say, other economies will be in a slowdown or recessionary phase in a globally synchronized world. Cathie Wood thinks a global recession is likely.

Given these macro headwinds, I would look at a few defensive stocks to buy. Ideally, these are stocks that have strong cash flow and clear dividend visibility. Even in times of economic downturn.

Let’s discuss which stocks to buy for the next recession.

Teleprinter Company Current price
AZN Astra Zeneca $63.66
WMT walmart $123.28
J AT&T $20.36
LMT Lockheed Martin $437.77
JNJ Johnson & Johnson $177.56

AstraZeneca (AZN)

Astra Zeneca (NASDAQ:AZN) is among the high-quality, low-beta stocks to buy for the next recession. With a forward price/earnings ratio of 16.3x and a dividend yield of 3.1%, the stock offers value.

For the first quarter of 2020, AstraZeneca reported robust revenue growth of 60% to $11.4 billion. The company also reiterated teen’s high percentage revenue growth forecast for 2022. It’s also worth noting that the company has a pipeline of 183 drugs in various stages of trials. Given the pipeline, AstraZeneca expects “sustainable growth” through 2025.

Additionally, for the first quarter of 2022, the company reported operating cash flow of $3.2 billion. With strong cash flow visibility, there is great flexibility to invest in research and potentially increase dividends.

This makes AZN stock attractive considering the stock is only 13% higher over a 12-month period. A breakout to the upside seems likely.

In particular, the company guiding core EPS growth of around 25%. A price/earnings/growth ratio below one indicates that AZN stock is undervalued.

Walmart (WMT)

In a recessionary scenario, policymakers will focus on increasing consumer spending. With retail sales being a key component of consumer spending, it makes sense to consider walmart (NYSE:WMT) among the shares to buy. Of course, WMT stock has a low beta and offers a dividend yield of 1.5%.

For fiscal year 2022, Walmart reported revenue growth of 2.4% on an annual basis. While revenue growth is unlikely to accelerate significantly, there are two points to note.

First, Walmart reported $24.2 billion in operating cash flow. There is great financial flexibility for dividends, share buybacks and aggressive investments in emerging markets.

Additionally, the company reported $5 billion in membership and other income. As member income increases, this is likely to support increased cash flow.

It’s also worth noting that Walmart’s online sales grew 1% and 70% over a two-year period. As the company strengthens its omnichannel retail presence, the outlook is positive.

Overall, WMT’s stock has been nearly sideways for the past 12 months. This is a good accumulation opportunity in a context of macro-economic uncertainties.

AT&T (T)

The split of the media division having been completed, AT&T (NYSE:J) the stock looks attractive with a forward P/E below 10x. The low beta stock is in consolidation mode and an upside breakout is imminent.

For the first quarter of 2022, AT&T reported operating revenue of $38.1 billion for the communications business. For the same period, adjusted EBITDA was $11.6 billion. With visibility into strong cash flow, AT&T is positioned to maintain dividends and deleveraging.

Another key bright spot for the communications division is continued growth in AT&T postpaid phone and fiber subscribers. The company has made significant investments in recent years in 5G and fiber. This will likely help support growth.

In terms of deleveraging, AT&T expects to reduce the net debt to adjusted EBITDA ratio to 2.3x by the end of 2023. This seems quite likely with positive cash flow and cash inflows after the spin-off .

Lockheed Martin (LMT)

With escalating geopolitical tensions coupled with a higher probability of recession, Lockheed Martin (NYSE:LMT) is among the best stocks to buy. Global military spending has already topped $2 trillion for the first time.

As Lockheed is a major supplier to the US government and NATO allies, the company is well placed to benefit. With most European countries below the defense spending target, the outlook is positive.

In March 2022, Lockheed reported an order book of $134 billion. This provides clear visibility into cash flow. In addition, it is likely that the order book will swell in the coming quarters.

In terms of cash flow, Lockheed Martin has forecast operating and free cash flow of $7.9 billion and $6 billion, respectively, for 2022. Given the backlog, cash flow is expected to remain stable in the years to come.

This is significant with LMT shares offering an annualized dividend of $11.2. The current dividend yield of 2.57% is attractive and sustainable.

Overall, defense spending is unlikely to decline even in a recessionary scenario. This makes LMT stocks worth considering in the portfolio.

Johnson & Johnson (JNJ)

Johnson & Johnson (NYSE:JNJ) is a diversified player in consumer healthcare, pharmaceuticals and medical devices. JNJ stock has been sideways for the past 12 months, but offers an attractive dividend yield of 2.56%.

In addition to being a defensive stock, I also believe that JNJ stock is positioned for an upside breakout. Recently, the company appointed a CEO and CFO for the consumer division spinoff. This is likely to create value with a focused healthcare business and a distinct consumer business.

Of course, the spin-off doesn’t happen immediately. However, the plans are likely to ensure that the decline in JNJ shares is capped. On the other hand, the upside potential looks significant at current valuations.

For the first quarter of 2022, the company reported sales of $23.4 billion, up 5% year on year. Sales growth was driven by the pharmaceutical and medical device segment. The consumer segment recorded a marginal decrease in sales. The potential spin-off from the struggling division seems like a good move.

As of the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Faisal Humayun is a senior research analyst with 12 years of experience in credit research, equity research and financial modeling. Faisal is the author of over 1,500 stock-specific articles focused on the technology, energy and materials sectors.

Garland K. Long