Mortgage applications tumbled last week to their lowest levels in 22 years. First quarter gross domestic product came in at -1.6% and the Atlanta Fed GDPNOW tracker as of July 19 had the second-quarter GDP at the same -1.6%, and we will find out this week just how accurate that number is on Thursday. By definition a recession is two consecutive quarters of negative GDP growth. With inflation raging at the highest levels in 40 years, and the cost of gasoline and groceries hammering American consumers, the prospects for the rest of the year do not look good.
We decided to screen the Goldman Sachs Conviction List looking for ideas for investors who want to stay in the equity markets, but are concerned about the recession and inflation. While there could still be downside to as low as 3,400 on the S&P 500, and perhaps further, the time to buy is when there is the proverbial blood in the street, and that may not be far off.
While all seven are Buy rated, pay solid dividends, and are among the top picks at Goldman Sachs, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
American International Group
If any sector is recession and inflation proof it’s insurance, and this market leader is a very solid long-term idea. American International Group, Inc. (NYSE: AIG) offers insurance products for commercial, institutional, and individual customers in North America and internationally.
The company’s general insurance segment provides general liability, environmental, commercial automobile liability, workers’ compensation, casualty, and crisis management insurance products; commercial, industrial, and energy-related property insurance; and aerospace, political risk, trade credit, portfolio solutions, crop, and marine insurance.
AIG also provides professional liability insurance products for a range of businesses and risks, including directors and officers, mergers and acquisitions, fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions insurance. In addition, this segment offers personal auto and property insurance, such as auto, homeowners, umbrella, yacht, fine art, and collections; voluntary and sponsor-paid personal accident; supplemental health products; extended warranty insurance products; and travel insurance products.
The company’s life and retirement segment offers variable annuities, index and fixed annuities, and retail mutual funds; and financial planning and advisory services; record-keeping, plan administrative, and compliance services; and term life and universal life insurance. It also provides stable value wrap products, and structured settlement and pension risk transfer annuities; and corporate- and bank-owned life insurance and guaranteed investment contracts.
Shareholders receive a solid 2.49% dividend. The Goldman Sachs target price for the giant insurance heavyweight is posted at $81, while the Wall Street consensus is set much lower at $67.36. The stock closed trading Friday at $51.33.
Bank of America
The company posted very solid second-quarter results, but took huge provisions for credit losses. Bank of America Corporation (NYSE: BAC) is a ubiquitous presence in the United States. The money-center bank provides various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations, and governments in the United States and internationally. Operating 5,100 banking centers, 16,300 ATMs, call centers, online and mobile banking platforms.
24/7 Wall St.Bank of America has expanded into a number of new US markets, with scale across the country positioning the financial institution ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to substantially increase investment over the next few years without notably jeopardizing returns, driving further market share gains.
Shareholders are paid a 2.63% dividend. Goldman Sachs has a $42 target price. The Wall Street consensus price target is posted at $42.25. The last share price Friday was $33.43. Investors may recall that Warren Buffett owns a stunning 1.1 billion shares of the bank.
DTE Energy
With the potential for continued very warm summer weather, this energy provider may look to extend gains well into the second half of 2022. DTE Energy, Inc. (NYSE: DTE) is the largest utility in Michigan. Its biggest operating units are DTE Electric, a utility serving 2.2 million customers in southeastern Michigan, and DTE Gas, a natural gas utility serving 1.3 million customers in that state. DTE Energy also has non-utility energy businesses that focus on power and industrial projects, natural gas midstream, and energy trading.
The company’s gas segment buys, stores, transports, distributes, and sells natural gas to about residential, commercial, and industrial customers throughout Michigan; and sells storage and transportation capacity. This segment has approximately 19,800 miles of distribution mains; 1.3 million service pipelines; and 1.3 million active meters, as well as owning roughly 2,000 miles of transmission pipelines.
Its gas storage and pipelines segment owns natural gas storage fields, lateral and gathering pipeline systems, and compression and surface facilities. DTE Energy has ownership interests in interstate pipelines serving the Midwest, Ontario, and Northeast markets.
The company’s power and industrial projects segment offers metallurgical coke; pulverized coal and petroleum coke to the steel, pulp and paper, and other industries; power, steam and chilled water production; wastewater treatment services, and it supplies compressed air to industrial customers.
Shareholders are paid a very dependable 2.86% dividend. Goldman Sachs has a Buy rating on this top utility that resides on the Conviction List. The firm’s price objective is posted at $142, and that compares with a lower $137.97 consensus and Friday’s closing price of $123.75.
Merck
This company remains a leading healthcare stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) is a worldwide healthcare company. It operates through two segments – pharmaceutical and animal health.
The pharmaceutical segment offers human health products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, and diabetes, as well as vaccine products, such as preventive pediatric, adolescent, and adult vaccines.
The animal health segment discovers, develops, manufactures, and markets veterinary pharmaceuticals, vaccines, and health management solutions and services, as well as digitally connected identification, traceability, and monitoring products.
Merck serves drug wholesalers and retailers, hospitals, and government agencies; managed health care providers, such as health maintenance organizations, pharmacy benefit managers, and other institutions; and physicians and physician distributors, veterinarians, and animal producers. The company has collaborations with AstraZeneca PLC; Bayer AG; Eisai Co., Ltd.; Ridgeback Biotherapeutics; and Gilead Sciences, Inc. to jointly develop and commercialize long-acting treatments for HIV.
Investors are paid a solid 3.07% dividend. Goldman Sachs has a $105 target price and the stock is a top pharmaceutical on the firm’s Conviction List of top stock picks. Merck has a consensus target across Wall Street of $99.35, which compares with Friday’s closing print of $90.11.
PepsiCo
This is a top consumer staples stock that is supplying snacks for summer picnics. PepsiCo, Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lays and Ruffles potato chips; Doritos, Tostitos, and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips, and Fritos corn chips.
The company’s Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola, and oat squares; and Pearl Milling mixes and syrups, Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal, and Rice-A-Roni side dishes.
Pepsico’s North America Beverages segment offers beverage concentrates, fountain syrups, and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist, and Mug brands; and ready-to-drink tea and coffee, and juices.
Shareholders receive a very dependable 2.71% dividend. BofA Securities rates the shares a Buy and has their price target posted at $190, while the consensus is set at $182.37. PepsiCo shares closed Friday at $169.61.
Republic Services
Despite the economy’s ups and downs, somebody has to pick up the trash and recyclables each week, and this is a leader in the business. Republic Services Inc. (NYSE: RSG) together with its subsidiaries, provides environmental services in the United States. The company offers collection and processing of recyclable materials, collection, transfer and disposal of non-hazardous solid waste, and other environmental solutions.
Its collection services include curbside collection of material for transport to transfer stations, landfills, or recycling processing centers; supply of recycling and waste containers; and renting of compactors. In addition, Republic Services engages in the processing and sale of old corrugated containers, old newsprint, aluminum, glass, and other materials; and provision of landfill and transfer services.
Republic Services also offers disposal of non-hazardous solid and liquid material and in-plant services, such as transportation and logistics. It serves small-container, large-container, and residential customers. As of December 31, 2021, the company operated through 356 collection operations, 239 transfer stations, 198 active landfills, 71 recycling processing centers, six saltwater disposal wells, and seven deep injection wells, as well as three treatment, recovery, and disposal facilities in 41 states. It also operated 77 landfill gas-to-energy and renewable energy projects and had 124 closed landfills.
Shareholders are paid a 1.40% dividend. The Goldman Sachs price target is set at $153, while the consensus was last seen at $145.43. The shares ended trading on Friday at $131.02.
Walmart
The giant retailer has posted solid results over the last year, and is a top idea in an inflationary environment when consumers look for value. Wal-Mart Stores Inc. (NYSE: WMT) is the world’s largest retailer, operating retail stores under the formats of Wal-Mart Stores, Supercenters, Neighborhood Markets and Sam’s Club locations in the United States. It also has a growing e-commerce business (including Jet.com). Internationally, Wal-Mart operates locations in several countries, including Argentina, Brazil, Canada, China, Japan, Mexico, and the United Kingdom.
Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. Walmart had fiscal year 2019 revenue of $514.4 billion. It employs about 2.2 million associates worldwide.
Shareholders are paid a 1.69% dividend. The Goldman Sachs analysts have a price target of $138. That compares with the higher consensus target that is posted at $154.04. Walmart shares were last seen trading Friday at $132.21.
All seven of these top companies have reasonable upside to the Goldman Sachs targets, and they all pay very dependable dividends. With even moderate appreciation in the share prices of these top companies, investors should be looking at double-digit total return potential. In a market that remains very long in the tooth despite the horrific first half, and an economy that is sputtering, these dependable companies make a ton of sense for nervous investors now as we are likely in a recession already.
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