Be it a slowdown or recession, portfolios need readjustment and relatively high exposure to some of the best recession stocks for 2023. In my opinion, the best recession stocks would typically be low-beta stocks for capital preservation. Additionally, a healthy dividend yield would provide investors with regular cash flows. It’s an added bonus if these stocks are trading at a valuation gap. Total returns can be robust once market sentiments reverse. Coming to the recession fears, economists peg the probability of recession at 61% for the year. Amidst this concern, the good news is that aggressive monetary policy tightening is likely to end. In general, a weaker dollar is positive for risky asset classes. However, for now, it makes sense to remain cautiously optimistic. Let’s discuss three of the best recession stocks for 2023.
| PFE | Pfizer | $40.18 |
| NEM | Newmont Corporation | $44.10 |
| COST | Costco | $478.67 |
Pfizer (PFE)
Pfizer (NYSE:PFE) may not have performed well in the last 12 months. However, there are multiple reasons to consider PFE stock at current prices. For one, PFE stock trades at a forward price-earnings ratio of 11.4, which is attractive here. Furthermore, the stock has an attractive dividend yield of 4.08% and appears sustainable. Also, in a recession scenario, it makes sense to consider exposure to the pharmaceutical sector. Reason: cash flows are relatively immune to economic fluctuations.
It’s also worth noting that Pfizer has a deep pipeline of drug candidates. As drugs are commercialized, revenue growth is likely to remain steady. Further, with robust free cash flows, Pfizer has been active on the acquisition front. This has helped the company broaden its product pipeline. It’s being reported that Pfizer is in talks for a potential buyout of Seagen (NASDAQ:SGEN). The offer could be potentially worth $30 billion.
Newmont Corporation (NEM)
Newmont Corporation (NYSE:NEM) was understandably weak in 2022. After all, gold was trending lower with aggressive contractionary monetary policies. However, NEM now appears attractive with a dividend yield of 3.67%. In a recession scenario, the dollar is likely to weaken. This will be positive for gold and I expect the recent uptrend in the precious metal to sustain. Factors such as geopolitical tensions and inflation are also likely to support gold upside. As realized gold prices improve, Newmont will be positioned to deliver healthy free cash flows. I, therefore, expect NEM stock to trend higher in a recession scenario.
From a fundamental perspective, Newmont has an investment-grade balance sheet and $6.7 billion in liquidity buffer. As free cash flows swell, the company will be positioned to increase dividends. Also, with 96 million ounces of proven reserves, the company has had steady cash flow visibility through the decade.
Costco (COST)
The Costco (NASDAQ:COST) stock looks attractive among retailers. For Jan. Costco reported sales growth of 6.9% on a year-on-year basis. Sales growth has sustained and Costco continues to report robust cash flows. Costco has also strengthened its omnichannel presence through the pandemic. It’s also worth noting that for the last 12 months, Costco reported $4.3 billion in the membership fee. With a high renewal rate and the opening of new stores, recurring revenue will continue to swell. COST stock is therefore among the best dividend stocks to consider.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.