Stocks such as Hershey and Microsoft could be the best hideout spots as threats of an economic recession linger, according to HSBC. Wall Street got a jolt of volatility recently on disappointing U.S. employment and manufacturing numbers. The unwind of a popular hedge fund trade on the Japanese yen also sent ripples around global markets. The S & P 500 on Aug. 5 posted its biggest one-day loss since 2022 but has since recovered from that retreat. “We expect volatility over the next several weeks as the market assesses the probability of recession risks and the extent of Fed rate cuts,” strategist Nicole Inui wrote in a Monday note. “All point to near-term share price weakness and tactical positioning in defensives.” Against that backdrop, HSBC highlighted 10 stocks it believes could best perform amid this near-term volatility and a potential economic downturn. The firm’s base case is that the Federal Reserve will begin easing interest rates in September and that the U.S. economy will avoid a recession. Take a look at some of HSBC’s favorite buy-rated stocks for a choppy market period: Thermo Fisher Scientific made the list. Analyst Sidharth Sahoo’s $690 price target on the stock implies shares can gain 15.2% over the next year. The stock struggled in the last two years, losing 17% in 2022 and 3% in 2023, due to a slowdown in the company’s Covid-related sales. This year, shares have jumped 13%, with most of those gains occurring over the past month, after the company posted a second-quarter profit beat and lifted its revenue and earnings expectations for the year. “TMO remains on a Life Science Tools recovery path. While the destocking trends meant the sector underperformed the wider market in 2023, the earnings momentum remains on the upward trend reflective of the 2nd consecutive quarter,” Sahoo said. The firm also remains bullish on the artificial intelligence trade, particularly when it comes to Microsoft . According to analyst Stephen Bersey, Microsoft has strong defensive characteristics against macroeconomic weakness, given its business model and strong balance sheet as well as high operating margins. Specifically, Bersey pointed out that most of the tech giant’s revenue sources are tied to long-term software as a service, or SaaS, or usage agreements that bind its future revenues with recurring contracts. The length of those contracts is about two to three years, he believes. “Due to its products and services’ critical positioning within enterprises, we think it is difficult for customers to materially reduce spending with Microsoft,” analyst Stephen Bersey said. “Also, Azure revenue growth and profitability are being fueled by the global proliferation of AI. And we see AI as a non-negotiable investment within most large enterprises … The company has a strong and sustainable competitive advantage and is very hard to displace in most of its end markets.” His $533 price target implies about 31% upside for the stock. Chocolate producer Hershey is another play that could hedge portfolios against an economic downturn, per analyst Alejandro Zamacona. His $232 price target implies 16.8% potential upside for the stock, which is up about 7% year to date. Although Hershey shares have lagged the S & P 500 and the consumer staples sector in 2024 due to higher cocoa prices, Zamacona expects the recent ease in cocoa prices to lead to an improvement in the company’s earnings for the second half of the year after a tough first half. “Within Packaged Food (one of the Consumer Staples industries), Hershey is our Buy-rated preferred name, given the compelling valuation, potential positive surprises ahead amid a potential normalization of cocoa prices, strong pricing power, low private label penetration, chocolate confectionery category leadership, and good capital stewardship,” the analyst said. HSY .SPX,XLP YTD mountain HSY vs SPX and XLP in 2024 Other HSBC favorites are financial services company American Express and big-box retailer Walmart .
