These tech stocks have a strong track record.
The stock market has run into a few bumps in the road lately thanks to rising fears about a potential recession. Tech stocks have historically performed poorly during market downturns, and tech investors are rightfully concerned about how best to position their portfolio for the next one. Nomura Instinet analyst Mark Kelley recently looked back at how the internet group of stocks performed during the last recession to identify groups of tech stocks that might outperform during the next market downturn. Here are seven stocks to buy that might not take as big of a hit as others.
Alphabet (ticker: GOOG, GOOGL)
Kelley says stocks with strong balance sheets and dominant market shares can be safe havens during a recession, and Alphabet fits that description perfectly. In addition, digital advertisers like Google performed relatively well during the last market downturn. Global advertising budgets dropped 1% in 2008 and another 10% in 2009, but Kelley says digital advertising budgets were up 20% in 2008 and 6% in 2009. Online advertising is a secular growth trend and Google is the market leader. Kelley says digital advertising budgets will likely hold up well during the next recession.
Facebook (FB)
Like Alphabet, Facebook is a market leader in digital advertising, it has a strong balance sheet and it has a stable business. Kelley says digital advertising will likely not be as protected as it was during the last recession simply because it now makes up a much larger percentage of total advertising spend. However, advertisers will likely be quicker to cut traditional media ad budgets than digital advertising on Facebook. In addition, politicians and regulators in Washington may have their hands full dealing with the economy, which could put a potential regulatory crackdown on Facebook on hold.
Amazon.com (AMZN)
Much like digital advertising, Kelley says e-commerce is a secular growth trend and online sales leaders will likely outperform traditional retailers during the next downturn. In 2008 and 2009, the S&P 500 declined 24% overall, but shares of e-commerce leader Amazon.com were up 45.6% during that stretch. From the day of the U.S. Treasury yield curve inversion in 2005 to one year after the market bottomed in March 2009, a Nomura Instinet basket of e-commerce companies led by Amazon gained an impressive 328%.
eBay (EBAY)
U.S. retail sales dropped 8% in 2009, but e-commerce sales were up 2% that year. Kelley says eBay and other e-commerce stocks are far from recession proof and could take a big hit during the downturn, but he says their businesses (and likely stock prices) could be quicker to recover. For example, from the beginning of 2007 to the market bottom in 2009, eBay stock dropped more than 60%. However, by the beginning of 2012 it was back into positive territory while the S&P 500 was still down more than 11% overall.
Chewy (CHWY)
Not only is Chewy another e-commerce stock, its pet products business gives it an extra layer of protection against a market downturn. While Americans are willing to sacrifice a significant amount of discretionary spending during a recession, history shows they are not willing to pass along their economic pain to their pets. Pet supply spending actually increased in 2008. Nearly 70% of American households own pets, and tech-savvy millennials own a disproportionately large number of those pets, according to the American Pet Products Association. Investors can expect Chewy’s business to weather the next recession.
Shopify (SHOP)
Behind Amazon and eBay, Shopify is the largest American e-commerce company by gross merchandise volume and now holds a 5% U.S. e-commerce market share. Shopify charges businesses as little as $9 per month for access to a basic tool kit for selling goods online. Tough times may actually force more small businesses to look online to Shopify’s platform to expand their potential customer base. Businesses seeking to optimize their operations to weather the economic storm can use Shopify’s services, including payment processing and working capital loans. Shopify’s bottom line may hold up relatively well.
Walmart (WMT)
Walmart isn’t technically a tech stock, but the company has dumped billions of dollars in recent years into improving Walmart.com and acquiring online shopping site Jet.com. U.S. online sales were up 40 percent in 2018, and Walmart is expected to generate at least $21 billion in U.S. online sales revenue this year. Walmart’s brick-and-mortar discount retail business is also relatively recession-proof. From the beginning of 2007 to the end of 2009, Walmart’s stock gained 15.7% compared to a 12.3% decline for the SPDR S&P Retail (XRT) exchange-traded fund.
Top tech stocks to own in a recession:
- Alphabet (GOOG, GOOGL)
- Facebook (FB)
- Amazon.com (AMZN)
- eBay (EBAY)
- Chewy (CHWY)
- Shopify (SHOP)
- Walmart (WMT)