3 high-tech stocks to buy in a recession
The recent jobs report has many people believing that we might just outrun a recession. More than 550,000 new jobs were reported in June, double what was expected, and gasoline prices have fallen sharply in the past month, although they are still much higher than there were. over a year old.
Yet these are also signs of an economy warming up again, which could force the Federal Reserve to be even more aggressive in raising interest rates. That’s why it’s always prudent to plan for the worst and hope for the best. An official recession may still be in our future, and we need to prepare our portfolios for this possibility.
Picking stocks that can weather the storm and do well afterwards are also the types of companies we should look for, and the next trio of high-tech stocks should outperform no matter what the market throws at them.
After abandoning its Warner Media division in the new Discovery of Warner Bros. in April, AT&T (T -0.50%) is now able to focus solely on its telecommunications operations and the deployment of its 5G network which will provide the industry with its next wave of growth.
Although AT&T says it is not immune to the impacts of the economy-wide recession, it is able to manage them and invest in the long-term interests of customers and investors.
The nationwide rollout of 5G networks is expected to encourage a steady device replacement cycle by consumers and enterprise-level customers. AT&T is already seeing the benefits of its system upgrades with historic levels of customer net additions in the second quarter with 5.5 million net additions, while adding 789,000 postpaid phone net additions, the most than he has seen over the period in a decade.
With a dividend that pays 6.1% annually and a stock that trades at just six times earnings and seven times next year’s estimates, but also generates 12 times the free cash flow it produces, AT&T is a stock designed for a recession and beyond.
5G rollout will also benefit the chipmaker Broadcom (AVGO 3.31%), which derives most of its revenue from its next-generation wireless chips for smartphones. It’s been about 10 years since there’s been a significant mobile download speed upgrade, and the replacement cycle that will push AT&T forward will necessarily boost Broadcom by the middle of the decade and likely beyond.
While the mobile component is obviously the key driver, Broadcom has developed additional businesses in data centers and the automotive sector. In particular, data center growth could be an equally important aspect of the growth story, as Broadcom’s chips have seen a 40-fold increase in performance in less than a decade, as they introduce a new generation of data center switch chips approximately every 18 months to two years.
Broadcom had a hardware backlog of $29 billion at the end of the second quarter and a software backlog of $15 billion, up 38% and 7%, respectively, from a year ago. Any recession will obviously impact results, but it has enduring customer demand to weather any tough times.
3. Assets received
The third member of our triumvirate of cutting-edge tech stocks to weather a storm of recession is the online lender Upstart Holdings (UPST 17.75%)an admittedly counter-intuitive choice for a period when the Fed is raising interest rates by the shovel.
With these massive job gains just announced, Fed governors will be hard pressed not to keep raising rates to cool an economy that may be heating up again. That’s why we may not be out of the recession woods yet, but Upstart should still be able to navigate choppy waters.
Because Upstart eschews traditional methods of verifying a loan in favor of using artificial intelligence (AI), it is able to save critical time for borrowers and offer savings for lenders, all without adding any additional risk.
Even though Upstart’s approved borrowers tend to have lower average credit scores than those approved by their traditionally vetted counterparts, the online lender’s dropout rates are actually lower than the competition. This means Upstart can offer lenders a wider pool of potential customers, which is important because, even in a recession, banks and other financial institutions still need to lend money to survive.
While borrower demand could be affected in a downturn, Upstart is expanding into new markets, such as low-value loans and auto loans, where it can apply its AI-powered technology with equal success.
Rich Duprey held positions at AT&T and Warner Bros. Discovery, Inc. The Motley Fool holds positions and recommends Upstart Holdings, Inc. The Motley Fool recommends Broadcom Ltd and Warner Bros. Discovery, Inc. The Motley Fool has a Disclosure Policy.