The list consists of small- and mid-cap stocks. The economy shrank in the first quarter, and some see a Q2 decline too.
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 qualityBottom quintile by riskReturning 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) – Get The Hershey Company Report, the candy companyO’Reilly Automotive (ORLY) – Get O’Reilly Automotive Inc. Report, an auto parts companyAutoZone (AZO) – Get AutoZone Inc. Report, an auto parts companyPaychex (PAYX) – Get Paychex Inc. Report, a human resources companyAmphenol (APH) – Get Amphenol Corporation Report, an electronic connectors makerBrown-Forman, (BF.B) – Get Brown Forman Inc Class B Report, an alcoholic beverage companyYum! Brands (YUM) – Get Yum! Brands Inc. Report, the restaurant company which owns Taco Bell, Pizza Hut, and KFC ResMed (RMD) – Get ResMed Inc. Report, a medical device companyAmerisourceBergen (ABC) – Get AmerisourceBergen Corporation Report, a drug wholesalerOtis Worldwide (OTIS) – Get Otis Worldwide Corporation Report, 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.”
