What are the top two tech stocks for a recession – and four more if there isn’t one?

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There has been a lot of talk about a recession from all walks of finance, including economists, talking heads, journalists, and seemingly everyone else on Wall Street.

While the markets seem to be taking into account the possibility that the economy may enter a recession, with many stocks down significantly since the beginning of the year, if the economy contracts, Meta Platforms (NASDAQ:FB) and Alphabet, the parent company of Google (NASDAQ:GOOG) (NASDAQ: GOOGL) are the top two picks, according to Bank of America analyst Justin Post.

Post noted that even if revenue growth for both companies slows, the pair of internet giants could actually see an increase in profits during a recession.

Using the last recession as an example, Post said that while Alphabet (GOOG) (GOOGL) saw revenue growth slow from 43% in the second quarter of 2008 to 5% in the second quarter of 2009, and operating expenses only declined from $1.65 billion to $1.56 billion during the period. Additionally, operating margins have shrunk from 41% to 46% and earnings per share have increased 30% year over year during this recessionary period.

“While reductions in revenue estimates for ad stocks are very likely in a recessionary scenario, we believe that Meta ($12 [billion] in planned [Reality Labs] losses) and Alphabet ($5 [billion] in other loss bets) have potential capital expenditure and bonus accrual flexibility that could allow companies to increase earnings in a mild to moderate recession scenario with limited or no revenue growth”, Post wrote in a note to clients.

Regarding Meta Platforms (FB), Post added that the company’s spending forecast, which Meta (FB) recently reduced to a range of $87 billion to $92 billion, gives the company “meaningful flexibility” that can help stabilize earnings estimates if growth does not materialize. start accelerating in the second half of 2022, as planned.

Earlier this week, Post noted that Meta (FB) has already begun to slow down some of its spending, including the pace of investment in its augmented and virtual reality unit, Reality Labs Research.

According to economists at Bank of America, the S&P 500 (SP500) discounts more than a 30% chance of a recession. This is based on performance and the fact that earnings multiples have fallen 10 points, similar to the recessions of 2008 and 2020.

While many expect a recession to occur in the near term, if for some reason it doesn’t, Post noted that “sustainable risk trading” could occur in the fall. 2022 or maybe 2023.

If a recession doesn’t occur, the investment firm said it prefers “stock gainers,” which outperformed after the stock market bottomed in November 2008. These “stock gainers” include Amazon ( AMZN), Snap (SNAP), Airbnb (ABNB), and DoorDash (DASH).

Amazon (AMZN) is likely to gain in e-commerce while Snap (SNAP), Airbnb (ABNB) and DoorDash (DASH) are mentioned as possible market share gainers in their sectors. Post noted that all three companies rebounded significantly during the fleeting rally in stocks in March earlier.

This week, a bill recently introduced in the US Senate, known as the Competition and Transparency in Digital Advertising Act, would force Google (GOOG) (GOOGL) and Meta Platforms (FB) to dismantle their online advertising businesses.

Garland K. Long