- Bank of America Merrill Lynch released a report Monday highlighting 10 “defensive” stocks set to outperform markets during economic downturns.
- A collection of proprietary indicators point to continued weakness in economic growth, according to analyst Savita Subramanian.
- BAML recommends stocks in the automotive and healthcare industries, among others.
- Visit the Markets Insider homepage for more stories.
A Bank of America Merrill Lynch released a recent report citing a handful of economic indicators for growing fear of an economic downturn. The bank’s analysts recommend 10 stocks for investors who seek to insulate their portfolios from a weakening economy.
“High quality” and “defensive” stocks outperform their peers in slower growth environments, BAML analyst Savita Subramanian said in the Monday report. She added that the stocks are “less tied to cyclical pressures” and are underowned by active funds.
That offers an optimistic contrast to so-called crowded companies like Visa and Amazon, whose heavy ownership could intensify a market decline if everyone heads for the exits simultaneously.
Several of the noted companies are tied to the automotive industry, ranging from Ferrari to parts retailer O'Reilly Automotive. Subramanian also includes Broadcom and Comcast, saying data usage, cloud computing, and the advent of 5G will keep the companies revenues steady amid potential recession.
The listed stocks have a 28% average implied upside according to the bank, and eight of the 10 companies have at least a "B+" S&P 500 common stock rank.
Here are the 10 companies highlighted in the report, listed in increasing order of implied upside from current levels. All data is sourced from Bank of America Merrill Lynch, and share prices reflect Friday's close.
10. Broadcom
Ticker: AVGO
Industry: Semiconductors and semiconductor equipment
Year-to-date return: 18.2%
Share price: $300.90
BAML Price Target: $345
Implied upside: 14.6%
9. Northrop Grumman
Ticker: NOC
Industry: Aerospace and defense
Year-to-date return: 45.2%
Share price: $352.50
BAML Price Target: $405
Implied upside: 14.9%
8. Cerner
Ticker: CERN
Industry: Health care technology
Year-to-date return: 40.2%
Share price: $73.10
BAML Price Target: $84
Implied upside: 14.9%
7. TJX Companies
Ticker: TJX
Industry: Specialty retail
Year-to-date return: 24%
Share price: $55.80
BAML Price Target: $65
Implied upside: 16.6%
6. O'Reilly Automotive
Ticker: ORLY
Industry: Specialty retail
Year-to-date return: 12.6%
Share price: $383.80
BAML Price Target: $450
Implied upside: 17.3%
5. Comcast
Ticker: CMCSA
Industry: Media
Year-to-date return: 30.5%
Share price: $44.60
BAML Price Target: $58
Implied upside: 30%
4. Advance Auto Parts
Ticker: AAP
Industry: Specialty retail
Year-to-date return: -3.6%
Share price: $152.60
BAML Price Target: $200
Implied upside: 31%
3. Ferrari
Ticker: RACE
Industry: Automobiles
Year-to-date return: 65.7%
Share price: $165.90
BAML Price Target: $225.00
Implied upside: 35.7%
2. Centene
Ticker: CNC
Industry: Health care providers and services
Year-to-date performance: -6.9%
Share price: $53.40
BAML Price Target: $75.00
Implied upside: 40.4%
1. Carmax
Ticker: KMX
Industry: Specialty retail
Year-to-date return: 46.4%
Share price: $91.20
BAML Price Target: $150
Implied upside: 64.5%