A lot of voices have been calling for a recession to start as early as this year. But whether we enter a recession this year or next, it’s better to be prepared.
Luckily, Goldman Sachs has put its analysts to work, and the bank just released a report that includes the stocks it believes will outperform even in a recession.
What have Goldman’s analysts been looking for in recession-proof stocks? Exploding margins, and all of the stocks below are expected to see margin growth of at least 100 basis points in 2019.
Margins typically tighten in a late-cycle environment like the one we’re in now, so spotting those companies that are exceptions can yield good results.
Here are three of the stocks from Goldman’s report.
Netflix (NASDAQ: NFLX)
So far this year, Netflix (NASDAQ: NFLX) has done very well. The stock is currently up just under 27% year-to-date (YTD).
The stock is included in the “high revenue growth” portfolio of 50 stocks that Goldman Sachs offers to its elite clients, with Netflix boasting extremely impressive expected 2019 margin expansion of 235 basis points.
The average price target for NFLX is $379.33, suggesting possible upside of nearly 12% over the next twelve months. Just last week, Goldman analyst Heath Terry reiterated his Buy rating for the stock and set a price target of $450 – 32.5% higher than Thursday’s closing price.
Terry believes the company’s investment in superior content implies increasing returns.
“As Netflix subscriber adds continue to exceed expectations and it approaches an inflection point in cash profitability, we believe shares of NFLX will continue to significantly outperform,” Terry wrote.
In its fourth quarter, Netflix added 8.8 million new subscribers, up 17%, with EPS of $0.30 compared to the consensus estimate of $0.24. And it just missed revenue estimates of $4.21 billion, coming in at $4.19 billion.
Still, regarding Netflix’s global subscriber growth, RBC Capital’s Mark Mahaney says “This is growth defined, in our view.” He has a $480 price target for the stock, 41% higher than the current price.
Vulcan Materials (NYSE: VMC)
Vulcan Materials (NYSE: VMC) is up 4% in the last month, but eight analysts agree that the stock is a Buy now. In fact, five analysts have issued back-to-back Buy ratings on the stock with an average price target of $126 – 24% higher than today’s closing price.
Vulcan is the largest producer of construction aggregates in the U.S., producing primarily crushed stone, sand, and gravel. That’s great news as aggregates typically outperform in a late-cycle environment and in inflationary environments.
Analysts expect that demand will improve thanks to increased government funding at both the federal- and state-level for infrastructure projects.
“We anticipate that improvements in pricing and margin trends will follow a recent aggregates demand strength acceleration,” said RBC Capital’s Michael Dahl.
PayPal (NASDAQ: PYPL)
PayPal (NASDAQ: PYPL) has been on a monster run since its dramatic dive on December 23 and 24. In fact since then, the stock is up 15% since the low hit on Christmas Eve, and is up nearly 6% YTD.
But the stock hit a snag this week when it reported earnings that beat expectations, but revenue that just missed estimates.
The company reported adjusted earnings per share of $0.69, up from $0.55 in the same quarter in 2017, beating analysts’ estimate of $0.66. GAAP EPS came in at $0.49, compared to Wall Street’s prediction of $0.45. Net income was $584 million, and revenue came in at $4.23 billion – just missing the consensus estimate of $4.24 billion.
Still, PayPal has beaten or met earnings expectations in every quarter that it has been a stand-alone company, which is impressive.
And what’s more, PayPal’s bet on Venmo looks to be paying off in a big way. The social peer-to-peer payments app processed around $19 billion in volume in the quarter, an 80% year-over-year increase.
PayPal’s COO, Bill Ready, told TheStreet that Venmo’s momentum can be attributed to users adopting some of the newer—and monetized—features that the company has rolled out in recent quarters.
“The thing we’re seeing as we’re introducing these new experiences—Venmo Card, pay with Venmo, Instant transfers—is really great adoption that’s broad based across those different initiatives,” Ready said.
“Venmo continues its impressive growth and monetization efforts,” said Cantor Fitzgerald analyst Joseph Foresi. “We believe PayPal can grow at roughly double market average, supporting its premium to the group.”
There are currently 27 Buy ratings for PYPL, and the average twelve-month price target for the stock is $96.90, indicating possible upside of nearly 10%. Earlier this month, Barclays reiterated their Overweight rating on the stock and boosted their price target to $115 – 29.5% higher than the current price.