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As The Market Sinks, Investors Are Flocking To These 3 “Recession Stocks”

As The Market Sinks, Investors Are Flocking To These 3 “Recession Stocks”

This wild market has everyone on edge, and many nervous investors are de-risking by moving into these 3 “recession stocks.” Here’s what you need to know about each.

The market had a bit of a comeback today with the Dow ending the day up 1.6%, the S&P 500 up 1.9%, and the Nasdaq gaining 3% – its best day since March.

This after a no good, very bad Wednesday that sent the Nasdaq into correction territory, and after weeks of spiking volatility and massive sell-offs.

And tonight, U.S. futures are pointing to another rout tomorrow, with futures implying a drop of 175.55 points for the DJIA at market open.

Nervous investors have been hoping for strong earnings reports to help stocks recover, but earnings have disappointed so far this season.

“No matter how good the report or how positive the guidance, investors are looking for the exits,” Justin Walters, cofounder of Bespoke Investment Group, wrote in a note to clients on Thursday. “Companies that are reporting earnings this season are getting slaughtered.”

Not just that, but BlackRock’s Laurence Fink thinks we may be at a pivotal threshold. “The biggest concern I see is that we may be at peak earnings,” Fink said recently. “We definitely see anxiety. … The markets are showing that, that investors are confused.”

But amid all this anxiety and mass selling, some stocks are performing quite well. In fact, the winners in the past few weeks are those stocks that most would reach for in a recession.

Here’s what you need to know about three such stocks.

Dollar General (NYSE: DG)

Dollar General (NYSE: DG) can’t be stopped by the infamous “retail apocalypse” or Amazon (NASDAQ: AMZN). And it’s not a big wonder why investors would cling to the stock when things are getting dicey.

Dollar General, and discount retailers in a broader sense, have largely been unaffected by the changing nature of how people shop. And beyond that, this is where people want to shop when they need to shop on the cheap, i.e. in a recession.

But the company has been growing quickly in the last few years with no recession in sight, adding around 1,000 stores in 2017. It has plans to add around the same number of new stores this year as well, which will put them in a good position to be where customers are when a recession does finally hit.

In Q2, the chain saw a 3.7% increase in same-store sales as a result of increased traffic and customers spending more, according to Dollar General’s CEO, Todd Vasos.

“I also want to note that our two-year same-store stack for the second quarter of 2018 was the highest in 10 quarters,” Vasos said. “Year to date, through the second quarter of 2018, we posted 2.9% same-store sales growth driven by greater customer productivity.”

“Based on our performance in the first half and our outlook for the rest of the year, we are increasing our net sales and same-store sales guidance for 2018,” he continued.

A month ago, Buckingham Research initiated coverage of the stock and rated it a Buy with a price target of $125, or nearly 13% higher over the next twelve months.

Conagra Brands (NYSE: CAG)

Conagra Brands (NYSE: CAG) is up 10.3% this month, and nearly 3% this week alone.

This packaged foods giant’s brands include plenty of grocery store staples that consumers reach for when they need to spend less on food, including: Banquet, RO*TEL, Healthy Choice, Hunt’s, Marie Callender’s, Hebrew National, and Peter Pan, to name a few.

Earlier this month, Conagra was upgraded to a Buy at UBS on the promise of its long-term growth potential on the heels of its deal to buy Pinnacle Foods for $8.1 billion. The deal will help Conagra better compete in the fast growing snack and frozen foods categories, and the deal will make the company the No.2 top U.S. frozen food maker by sales, behind Nestle (OTC: NSRGY).

The deal adds such names as Birds Eye, Power Bowls, and Hungry-Man to Conagra’s roster of name brands. These new brands may also help the company with the millennial age bracket as they offer fewer artificial ingredients and more protein.

Conagra’s CEO Sean Connolly told Reuters that by purchasing Pinnacle, their supply chain costs would shrink and their relationships with retailers would be strengthened.

“We can do a better job of filling full truckloads when we ship to our customers and work more efficiently,” Connolly said.

Analysts’ average twelve month price target for the stock is $42.89, suggesting possible upside of nearly 18%. JPMorgan Chase recently boosted its price target for the stock to $46, or 26.5% higher than Thursday’s closing price.

Walgreens Boots Alliance (NASDAQ: WBA)

Walgreens (NASDAQ: WBA) announced yesterday that it was upping its quarterly payout by 10% to $0.44 per share. The stock now yields 2.3% and has returned 11% over the last year. This increase marks the 43rd year in which the company has raised its dividend, making this stock a true dividend aristocrat.

The retail pharmacy giant has been around for 117 years, and boasts an impressive network of stores nationwide, which is expanding thanks to its acquisition of Rite Aid. The pharmacy chain is also testing a range of partnerships, including with Laboratory Corp. of America Holdings which will include 600 medical testing locations within its drugstores, and with subscription service Birchbox Inc which will test new beauty spaces in 11 stores.

Consumers go to Walgreens for their prescriptions and buy inexpensive household and cosmetic goods on their way through the store, a model that works well in any market – much like Dollar General.

But what I’m most interested in with Walgreens is how it is reacting to the Amazon threat. Amazon has been inching into the pharmacy business for a while now and just recently announced that it would be opening as many as 3,000 new AmazonGo cashier-less stores over the next few years, which could encroach on Walgreens’ space. But Walgreen’s CEO Stefano Pessina doesn’t see Amazon as much of an issue.

Pessina believes that Amazon “will find it more difficult to create the physical infrastructure than we will find it difficult to digitalize our company. … It shows that they have understood that you cannot just be online. The customer of the future will not be happy to sit at home to talk to an Alexa.”

Walgreens is indeed overhauling its digital operations and software, but Pessina believes people will ultimately still want to interact with a human being when they shop and will want the reassurance of being able to talk to a pharmacist when they have questions about a prescription.

And as for Amazon getting into the pharmacy business? Walgreens has a card in its back pocket that it may well play in the near term. The company currently owns 26% of AmerisourceBergen Corp, a worldwide drug distributor giant, and has held talks to buy-out the rest of the company. But there’s no rush to buy them just yet because, as Pessina says, “we control them strategically,” which may be a hint to Amazon that it could have trouble ahead if it decides to enter the virtual pharmacy market in 2019.

The average price target for WBA is $78.18, suggesting potential upside of 3.22% over the next twelve months. Earlier this month, JPMorgan Chase boosted their price target for the stock to $91 – 20% higher than the current price.

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