The adage that it “takes two to tango” is spot-on when discussing the U.S. economy this year. Much of Wall Street sees a recession, continued inflation (albeit lower than 2022), more interest rate hikes (which will bring the Federal Reserve’s terminal or final rate to 5.00% to 5.25%) and a host of other domestic and global issues. Those who see things through a more negative lens are the strategists that expect a hard landing for the economy.
A hard landing in the business cycle or economic cycle is when the economy rapidly shifts from growth to slowing growth to flat as it approaches a recession, usually caused by government attempts to raise rates in an effort to tame inflation. Those rates have gone from zero last year to 4.25% to 4.50% this year and will be heading higher.
A new Goldman Sachs research report highlights stocks the firm feels will do well in a soft or hard landing. Note that the strategists at the bank are not as negative as others on Wall Street:
For 2023, most investors expect the US will enter a recession at some point during the year, and most economists have a similar forecast. In contrast, Goldman Sachs economists believe the US will avoid a recession and assign only a 1/3 probability of a downturn. Recent labor and inflation data support the soft landing thesis. But prudent investors should at least consider the implications if a hard landing transpires.
Again, while Goldman Sachs is not as bearish as many, the report also said this about the potential for a hard landing:
The current three-month trend of S&P 500 forward EPS revision sentiment is the most negative reading outside of the 2008 and 2020 recessions. Most portfolio managers expect the US will enter a recession at some point during 2023. Some investors believe inflation will only subside modestly. Consequently, the Fed will be forced to hike more than the futures market currently implies and in the process will tip the economy into recession. Other fund managers expect GDP growth will deteriorate and the Fed will be forced to cut rates before the end of the year. In either event, the US economy would be in recession.
The analysts identified 36 companies that should outperform in a negative environment. We screened the list and found six stocks that are Buy rated at Goldman Sachs and pay dependable dividends. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This maker of tobacco products offers value investors a great entry point now as it has been hit as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business. In December 2018 it acquired 35% of Juul Labs, but the stock was pounded last summer when the FDA announced a ban on all sales of Juul vape pens. This decision was made after pleas from government officials and public health institutes that say Juul is too focused on selling its nicotine products to high-schoolers. A court and the FDA granted Juul’s request for a stay on the ban, allowing the company to still sell the products while an appeal is made on the decision.
Back in the fall, the company, which at the height of its popularity dominated the market with its sweet flavors, agreed to pay $438.5 million in a settlement with 33 states and one territory over marketing its Juul product to teens. Altria announced recently that it is looking to end its noncompete agreement with Juul to compete more aggressively in the vape space on its own.
While this gets sorted out, it is a good bet that Altria stock investors still will receive the 8.24% dividend. Deutsche Bank has a $57 target price, and the consensus target is $49.07. The shares closed on most recently at $45.62.
This top mid-cap stock has rallied nicely off the July lows but still offers investors an outstanding entry point. Bunge Ltd. (NYSE: BG) operates as an agribusiness and food company worldwide. It operates in the following segments.
The Agribusiness segment purchases, stores, transports, processes and sells agricultural commodities and commodity products, including oilseeds (primarily soybeans, rapeseed, canola and sunflower seeds) and grains (primarily wheat and corn) and vegetable oils and protein meals. It provides its products for animal feed manufacturers, livestock producers, wheat and corn millers and other oilseed processors, as well as third-party edible oil processing companies, as well as for industrial and biodiesel production.
The Edible Oil Products segment provides packaged and bulk oils and fats, including cooking oils, shortenings, margarines, mayonnaise and others for baked goods companies, snack food producers, confectioners, restaurant chains, foodservice operators, infant nutrition companies and other food manufacturers, as well as grocery chains, wholesalers, distributors and other retailers.
The Milling Products segment offers wheat flours and bakery mixes, corn milling products (including dry-milled cornmeals and flours, wet-milled masa and flours, and flaking and brewer’s grits, as well as soy-fortified cornmeal, corn-soy blends, and other products), whole grain and fiber ingredients and milled rice products.
The Sugar and Bioenergy segment produces sugar and ethanol, and it generates electricity from burning sugarcane bagasse. The Fertilizer segment offers nitrogen, phosphate and potassium fertilizers, as well as single super phosphate, ammonia, ammonium thiosulfate, monoammonium phosphate, diammonium phosphate, triple superphosphate, urea, urea-ammonium nitrate, ammonium sulfate and potassium chloride.
Investors receive a 2.50% dividend. The Goldman Sachs price target for Bunge stock is $165, while the consensus target is $130.58. The stock was last seen trading at $100.42.
If any company has products that stay in style, it is this one, and it has only 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer.
The company is one of the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.
The company made a gigantic $3.8 billion investment in cannabis company Canopy Growth in 2018 to increase its holdings in the company. The record investment reflects a world in which marijuana has become ubiquitous as its counterculture stigma fades and more states legalize use.
Shareholders receive a 1.43% dividend. The Goldman Sachs team has set a $264 price target. The consensus target is $255.86, and Constellation Brands stock closed most recently at $225.00.
This leading home improvement retailer has a low 6% of foreign sales, and it remains a top pick at Goldman Sachs. Lowe’s Companies Inc (NYSE: LOW) has more than 2,000 stores in the United States and Canada. The company has tempered its new store opening plans and is focusing investments on technology and e-commerce capabilities, in addition to improving its retail store productivity.
Lowes offers products for maintenance, repair, remodeling and home decorating. It provides home improvement products under the categories of kitchens and appliances; lumber and building materials; tools and hardware; fashion fixtures; rough plumbing and electrical; lawn and garden; seasonal living; paint; home fashions; storage and cleaning; flooring; millwork; and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.
The dividend yield here is 2.00% dividend. The $246 Goldman Sachs price target compares with the $236.95 consensus target for Lowe’s Companies stock. Shares were last seen trading at $212.16 apiece.
This is a more conservative way for investors to participate in the massive cloud growth. Microsoft Inc. (NASDAQ: MSFT) develops, licenses and supports software, services, devices, and solutions worldwide. The company operates in these three segments.
The Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Skype for Business; Skype, Outlook.com, OneDrive and LinkedIn; and Dynamics 365, a set of cloud-based and on-premises business solutions for organizations and enterprise divisions.
The Intelligent Cloud segment licenses SQL, Windows Servers, Visual Studio, System Center and related Client Access Licenses; GitHub provides a collaboration platform and code hosting service for developers; Nuance provides health care and enterprise AI solutions; and Azure, a cloud platform. It also offers enterprise support, Microsoft consulting, and nuance professional services to assist customers in developing, deploying and managing Microsoft server and desktop solutions; and training and certification on Microsoft products.
The More Personal Computing segment provides Windows original equipment manufacturer (OEM) licensing and other non-volume licensing of the Windows operating system; Windows Commercial, such as volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things. It also offers Surface, PC accessories, PCs, tablets, gaming and entertainment consoles, and other devices; Gaming, including Xbox hardware and Xbox content and services; video games and third-party video game royalties; and Search, including Bing and Microsoft advertising. The company sells its products through OEMs, distributors and resellers; and directly through digital marketplaces, online stores, and retail stores.
The software giant posted first-quarter fiscal 2023 results that beat Wall Street expectations on the top and bottom lines, though cloud revenue came in lower than expected and the company’s quarterly guidance fell short of expectations as well. Microsoft plans to moderate its operating expense growth in the next few quarters until demand heats back up.
Microsoft stock comes with a 1.22% dividend. The Goldman Sachs price target of $315 is well above the $293.96 consensus target and the most recent close at $239.23.
This top pharmaceutical stock was one of the biggest winners in the COVID-19 vaccine sweepstakes. Pfizer Inc. (NYSE: PFE) discovers, develops, manufactures, markets, distributes and sells biopharmaceutical products worldwide.
The company offers medicines and vaccines in various therapeutic areas, including the following:
- Cardiovascular metabolic and women’s health under the Premarin family and Eliquis brands
- Biologics, small molecules, immunotherapies and biosimilars under the Ibrance, Xtandi, Sutent, Inlyta, Retacrit, Lorbrena and Braftovi brands
- Sterile injectable and anti-infective medicines and oral COVID-19 treatment under the Sulperazon, Medrol, Zavicefta, Zithromax, Vfend, Panzyga and Paxlovid brands.
- Pneumococcal disease, meningococcal disease, tick-borne encephalitis and COVID-19 under the Comirnaty/BNT162b2, Nimenrix, FSME/IMMUN-TicoVac, Trumenba and the Prevnar family brands
- Biosimilars for chronic immune and inflammatory diseases under the Xeljanz, Enbrel, Inflectra, Eucrisa/Staquis and Cibinqo brands
- Amyloidosis, hemophilia and endocrine diseases under the Vyndaqel/Vyndamax, BeneFIX and Genotropin brands
Shareholders receive a 3.44% dividend. Pfizer stock has a $60 price objective at Goldman Sachs. Its consensus target is $55.49, and the shares last closed at $47.85 apiece.
How does 2023 go for the economy and the stock market? Flip a coin, as scenarios of a soft and hard landing are both possible. One thing is for sure, regardless of the final outcome the Buy rated stocks at Goldman Sachs that pay dividends are solid long-term additions to all growth and growth and income portfolios, and all will likely be excellent investments for those with a patient investment outlook.
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