Stocks like Hershey and Microsoft may be the best safe havens as threats of a recession linger, HSBC said. Wall Street has recently been reeling from disappointing US employment and manufacturing numbers. The easing of popular hedge fund trading on the Japanese yen sent ripples around global markets. The S&P 500 posted its biggest one-day loss since 2022 on Aug. 5, but has since recovered from that retreat. „We expect volatility in the next few weeks as the market assesses the likelihood of recessionary risks and the magnitude of central bank rate cuts,” strategist Nicole Inui wrote in a note on Monday. „All point to near-term share price weakness and a tactical stance on the defensive.” Against this backdrop, HSBC highlighted 10 stocks it believes can outperform amid this near-term volatility and potential economic slowdown. The company’s base case is that the Federal Reserve will begin easing interest rates in September and the U.S. economy will avoid recession. Check out some of HSBC’s favorite buy-rated stocks: Thermo Fisher Scientific made the list. Analyst Siddharth Sahoo’s $690 price target indicates the stock could gain 15.2% over the next year. The stock has struggled over the past two years, losing 17% in 2022 and 3% in 2023 due to a slowdown in the company’s Covid-related sales. Shares are up 13% this year, with most of those gains occurring in the past month, when the company posted a second-quarter profit and raised revenue and earnings expectations for the year. „TMO is on a recovery path for life science tools. In 2023, techstocking trends show that while the sector has outperformed the broader market, revenue momentum continues to trend upward with Q2 reflecting,” Sahu said. The company is bullish on the artificial intelligence business, especially when it comes to Microsoft. According to analyst Stephen Percy, Microsoft has strong defensive properties against macroeconomic weakness, with its business model and strong balance sheet and high operating margins. In particular, Percy pointed out that most of the revenue sources of technology companies are tied to long-term software-as-a-service or SaaS or usage contracts that link its future revenue to recurring contracts. He believes the length of those contracts will be about two to three years. „We believe it will be difficult for customers to cut costs with Microsoft because of the critical positioning of its products and services within enterprises,” analyst Stephen Percy said. „Furthermore, Azure revenue growth and profitability are driven by the global proliferation of AI. And we see AI as a non-negotiable investment within the largest enterprises … the company has a strong and sustainable competitive advantage and is very difficult to displace in most of its end markets.” His $533 price target represents about a 31% upside for the stock. Chocolate maker Hershey is another play that could protect portfolios against an economic downturn, says analyst Alejandro Zamagona. His $232 price target represents a 16.8% potential upside for the stock, which is up about 7% year to date. While Hershey shares have lagged the S&P 500 and the consumer staples sector in 2024 due to higher cocoa prices, Zamacona expects the company’s earnings to improve in the second half of the year due to the recent easing in cocoa prices. First half. „Within packaged food (one of the consumer staples industries), Hershey is our buy-rated favorite name, with strong valuations, cocoa prices, strong pricing, low private label penetration, potential positive surprises between chocolate candy, category leadership, and good capital stewardship. ” said the researcher. HSY .SPX,XLP YTD Mountain HSY vs SPX and XLP Other HSBC favorites in 2024 are financial services giant American Express and big-box retailer Walmart.
For HSBC, the best stocks to weather high market and economic volatility