Fed Chair Jay Powell took a trip to Capitol Hill this week for his regular interrogation by Congress – no doubt a tough trip to take for a guy already under incredible pressure for missing the mark on the Fed’s policy stance where inflation risk was concerned last year. That has now blossomed into the worst inflation problem we have seen in the U.S. in over four decades. (1)
In his testimony yesterday, Powell came right out and said the Fed’s current policy path could result in a recession. (2)
In fact, it’s a bit more dire than that: last quarter already registered negative growth, and the Atlanta Fed’s GDPNow metric (3) is reading 0% growth for Q2 at this point. That means we might already be in recession right now – the standard definition is two consecutive quarters of negative GDP growth. (4)
And yet the Fed still plans on hiking rates sharply higher over its next few meetings (5).
For investors, this all adds up to the need to rotate exposure into traditionally recession proof areas. With that in mind, we take a look at a few stocks that fit the bill below.
Synopsys Inc. (Nasdaq:SNPS) provides a platform for the design and testing of semiconductor chip, which is widely seen as a secular growth theme not contingent on the macro business cycle given the massive and increasing demand for semiconductors around the world.
According to a recent piece on money.usnews.com, Synopsys recently reported 25% revenue growth, 47% earnings per share growth and a 5.8% operating margin expansion in the most recent quarter. Analyst John Freeman says Synopsys’ high-margin intellectual property business is booming and the company’s overall fundamentals are improving. CFRA has a “strong buy” rating and $429 price target for SNPS stock, which closed at $296.18 on June 17. (6)
Synopsys Inc. (Nasdaq:SNPS) also recently announced a new RF design flow developed with Ansys and Keysight for the TSMC N6RF process, the most advanced RF CMOS technology that offers significant performance and power efficiency boosts. The flow helps mutual customers achieve power and performance optimizations for 5G chips while also accelerating design productivity for faster time-to-market.
“Our latest collaboration with Synopsys addresses the challenges of next-generation wireless systems, enabling designers to deliver greater connectivity, higher bandwidth, lower latency and better coverage for our increasingly connected world,” said Suk Lee, vice president of the Design Infrastructure Management Division at TSMC. “With high-quality, tightly integrated solutions from Synopsys as well as Ansys and Keysight, the new TSMC RF Design Reference Flow for the TSMC N6RF process provides a modern, open approach that enhances productivity for developing these complex ICs.” (7)
The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 3% in that timeframe. SNPS shares have been relatively flat over the past month of action, with very little net movement during that period.
Synopsys Inc. (Nasdaq:SNPS) managed to rope in revenues totaling $1.3B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 25%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($1.7B against $2.5B, respectively). (8)
1812 Brewing Co. Inc. (OTC US:KEGS) bills itself as an operator of and investor in companies in the craft beer industry. It’s an interesting period as we see recession forecasts jump, but also see some examples of momentum returning to the OTC marketplace, which signals the potential for some subsidence of risk aversion among market participants. Recent big upside moves on the OTC include Clubhouse Media Group Inc (OTCMKTS:CMGR), Golden Developing Solutions Inc (OTCMKTS:DVLP), and Southern Home Medical (OTCMKTS:SHOM). (9)
KEGS could be lined up for similar action. The company recently expanded its production capacity significantly over recent quarters after moving its original equipment and making additions to its capacity, driving an 83% expansion in production potential. It also took advantage of underpricing in the industry during the pandemic to acquire a second brewing system that was more than 4.2x larger than its original system and added additional fermentation tanks, driving its capacity another 1,000% higher. (10)
1812 Brewing Co. Inc. (OTC US:KEGS) just announced this week that it has received correspondence from Florida’s Department of State that the Company’s Articles of Amendment to its Articles of Incorporation reducing the Company’s authorized shares by ten (10) billion shares or 50% was processed on April 20, 2022.
“As previously stated, it was hard to imagine a scenario wherein the Company would need to issue 20 billion shares, and to have the Authorized Shares at that level was counterproductive to our ongoing efforts to reduce the Company’s overall cost of capital,” stated Chairman and CEO Tom Scozzafava. He continued, “This is just one step in KEGS’ ongoing effort to clean up its balance sheet and share structure, and it will not be our last. We have previously stated that we are looking to repay or restructure all of KEGS “floorless” convertible debentures, and from a capital structure perspective that is what we are focused on moving forward.” (11)
According to the company’s release, the reduction in Authorized Shares has an effective date of March 31, 2022. The Company’s transfer agent has adjusted the Company’s records to reflect the reduction and has reported the new Authorized Shares number to OTC Markets’ issuer services division.
1812 Brewing Co. Inc. (OTC US:KEGS) shares have been showing some sparks over recent days, popping as much as 150% early in the week, demonstrating the potential for greater upside if momentum builds. The stock had been basing along the $0.001 area over the past two months. Given its strides in building a fresh growth story and its most recent move to cut off dilution risk, this could be an interesting story as OTC stocks start to gain some interest.
Abbott Laboratories (NYSE:ABT) engages in the discovery, development, manufacture, and sale of a broad and diversified line of health care products. It operates through its Established Pharmaceutical Products, Nutritional Products, Diagnostic Products, and Medical Devices segments.
The Established Pharmaceutical Products segment refers to the international sales of a line of branded generic pharmaceutical products. The Nutritional Products segment caters to the worldwide sales of adult and pediatric nutritional products. The Diagnostic Products segment markets diagnostic systems and tests for blood banks, hospitals, commercial laboratories, and alternate-care testing sites. The Medical Devices segment includes electrophysiology, heart failure, vascular and structural heart devices for the treatment of cardiovascular diseases, and diabetes care products for people with diabetes, as well as neuromodulation devices for the management of chronic pain and movement disorders.
Abbott Laboratories (NYSE:ABT) recently announced a quarterly common dividend of 47 cents per share. This marks the 394th consecutive quarterly dividend to be paid by Abbott since 1924. The cash dividend is payable Aug. 15, 2022, to shareholders of record at the close of business on July 15, 2022.
According to the company’s release, Abbott has increased its dividend payout for 50 consecutive years and is a member of the S&P 500 Dividend Aristocrats Index, which tracks companies that have increased dividends annually for at least 25 consecutive years. (12)
The chart shows 2% added to share values of the company over the past week of action. Market participants may want to pay attention to this stock. ABT has a track record that includes a number of dramatic bounces. Moreover, the company has seen interest climb, with an increase in recent trading volume of 15% above the average volume levels in play in this stock over the longer term.
Abbott Laboratories (NYSE:ABT) has a significant war chest ($8.2B) of cash on the books, which is balanced by about $12.6B in total current liabilities. ABT is pulling in trailing 12-month revenues of $44.5B. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 13.8%. (13)
Other key names in the recession proof basket include including: Boston Beer Co. (NYSE:SAM), NextEra Energy Inc. (NYSE:NEE), Home Depot Inc. (NYSE:HD), Accenture PLC (NYSE:ACN), and Molson Coors Beverage Co. (NYSE:TAP). (14)
References:
- https://apnews.com/article/key-inflation-report-highest-level-in-four-decades-c0248c5b5705cd1523d3dab3771983b4
- https://www.nytimes.com/live/2022/06/22/business/economy-news-inflation-stocks
- https://www.atlantafed.org/cqer/research/gdpnow
- https://www.investopedia.com/terms/r/recession.asp
- https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
- https://money.usnews.com/investing/slideshows/7-stocks-that-soar-in-a-recession?slide=2
- https://finance.yahoo.com/news/synopsys-boosts-5g-soc-development-190000520.html
- https://www.marketwatch.com/investing/stock/snps?mod=search_symbol
- https://www.otcmarkets.com/
- https://www.globenewswire.com/Tracker?data=MAHUoZhLpRNz_k5jWSe0ddxkT4wHZnv290m5aOod8tNxGMxGS4tqygZvLEgFpMWDhVYo-dgYJXS2u1vFIJfxooWJYyExwCaxwCntZjXTIcFSAmgUWddY4OLd3T8AT5VrFDI8CaAnqNB8du-bFQWNYR1EN9sl9PVGyQhLEUq1Wev1SGIsObzX9daLWuKHSVYbut7TsB1vIKSE-ByCMB0QnA4wX9PP1eMoJ-VoLcdp9ENDiSw5ogR0_-tGbzJ2rQdf
- https://www.otcmarkets.com/stock/KEGS/news/1812-Brewing-Company-Inc-Reduces-Authorized-Shares-by-50?id=362170
- https://finance.yahoo.com/news/abbott-declares-394th-consecutive-quarterly-152600704.html
- https://www.marketwatch.com/investing/stock/abt?mod=search_symbol
- https://money.usnews.com/investing/slideshows/7-stocks-that-soar-in-a-recession
