The Best All-Weather Stocks For Any Economic Climate

There are certain stocks that are likely to outperform regardless of whether there is a U.S. recession or a soft landing, according to Evercore ISI, so it is important for investors to weigh both scenarios.

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Bringing inflation down without causing a recession would be a soft landing for the Federal Reserve. Since March 2022, the central bank has been raising interest rates, with the latest increase of 0.25 percentage points coming out of its February meeting. Evercore ISI is among the Wall Street firms, however, that are predicting a recession in the second half of the year according to their base-case scenario.

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“Stockpicking is crucial in light of potential economic weakness”, Julian Emanuel, the firm’s head of equity, derivatives, and quantitative research said in a note released on Sunday.

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There are two main themes that he's focusing on in this environment in terms of his approach. Emanuel pointed out that it would be beneficial to U.S.-listed Chinese companies and U.S. companies that sell to China if China reopened faster than expected after its Covid lockdowns. Furthermore, he describes "valmentum stocks" as value stocks with strong earnings-per-share momentum with high free-cash-flow yields.

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"All Weather U.S. Economy' stocks and in Soft-Landing beneficiary sectors such as Cons. Disc. (EVR ISI Strategy Opp), Tech and Communications could outperform in either a 'Soft Landing' or more challenging environment," Emanuel wrote.

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These are some of the names that made the cut.

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The stock of Booking Holdings is one of Evercore ISI's valmentum stocks. The stock is expected to gain about 15% from Friday's close, according to the firm's price target of $3,000 for the stock.

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The online travel company has been able to benefit from robust travel demand, posting its fourth-quarter earnings and revenue beat in February as a result. Its gross travel bookings increased by 44% from the fourth quarter a year ago to $27.3 billion. During the same time period, room nights were booked at a 39% increase.

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“Our company is encouraged by the continued strength and resilience of the demand from travelers in the past year as well as into the new year, which we believe speaks to the high level of consumer interest we are seeing in booking their travel through our platforms,” Booking Holdings CEO Glenn Fogel stated in its earnings release.

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So far this year, shares have risen 30%.

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Likewise, Alibaba, the Chinese e-commerce giant, also recently announced that its third-quarter earnings beat expectations. Trade Algo reported in January that activist investor Ryan Cohen, who has accumulated a stake in the company during the last few years as part of his chairmanship at GameStop and bets on meme stocks Bed Bath & Beyond and Expedia, had acquired a stake in the company.

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Since the beginning of the year, Alibaba shares have gained nearly 2%, but they are still below the highs enjoyed in 2020. Over the past three years, the stock has lost nearly 24%.

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Casino operators Wynn Resorts and Las Vegas Sands are two U.S. companies that earn revenue from their locations in Macao, China, which are owned and operated by U.S. companies. Both companies expressed optimism on recent earnings calls that the area would be able to recover after three difficult years due to Covid.

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“After recent actions taken by both the Macao and Mainland authorities to reopen the market, we are confident that the difficulties are behind us and the near-term future there is much brighter than it was before”, said Wynn CEO Craig Billings during a call with analysts in early February.

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“Macao has a bright future,” said Las Vegas Sands CEO Robert Goldstein, adding that it “will mature into a vibrant, diversified tourism market in the coming years.”

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The stock of Wynn has gained over 40% year to date, while Las Vegas Sands has gained over 26%.

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Finally, the share price of Apple has increased by more than 16% so far in 2018. Despite a strong dollar and production issues in China, the tech giant reported a loss of earnings and revenue in January, citing a poor macroeconomic environment and a strong dollar.

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More recently, the stock has received a boost from two Wall Street calls that have been issued. The Goldman Sachs investment bank initiated coverage of Apple on Monday with a buy rating and a $199 price target, suggesting a 31.8% upside from Friday's close. Morgan Stanley raised its price target for the stock from $160 to $180 last week, implying a 19% increase from Friday's close.