With most pundits calling for a recession up ahead, many new investors are wandering into uncharted territory. Undoubtedly, nobody knows what tomorrow holds, even for the “Strong Buy” stocks favored by analysts. With inflation uncertainty, rate hike fears, and ongoing layoffs hitting the tech sector, investors must be prepared for more excess volatility.
With Microsoft’s (NASDAQ:MSFT) latest mass layoff announcement, one has to think that employment, a metric that’s held up relatively well thus far, could turn lower, adding more worry to the recession-rattled investors. Indeed, it’s ugly out there, but there are some companies better suited than others to ride out the coming storm.
In this piece, we’ll compare two defensive stocks — MCD and AMT — that Wall Street analysts still view as “Strong Buys” and that I’m bullish on.
McDonald’s (NYSE:MCD)
Unsurprisingly, the golden arches top off this list of analyst-favored stocks that could fare well in an economic slump. Indeed, MCD stock has powered through past economic crises, offering solid value for those feeling the economy-induced pain in their wallets.
Even if a recession doesn’t send a wave of upscale restaurant customers over to the local McDonald’s for a Big Mac extra value meal, the company still looks poised for solid growth.
Investments in its app have helped give customer loyalty a jolt. The supreme value proposition may entice customers to keep notifications on so they don’t miss the best deals tailored to them. In a way, value and tech-savviness have helped McDonald’s stay close to its customers.
Coming recession tailwinds will be temporary, but of all defensive stocks, McDonald’s seems best equipped to thrive during and after the downturn. Looking further out, increasingly automated stores and the inclusion of other technologies could help margins rise.
Indeed, the new-age McDonald’s is really impressive, and with that, I think the stock deserves its 33.2 times trailing earnings multiple, which is admittedly higher than its historical average. Nonetheless, with the restaurant industry price-to-earnings multiple pinned at 35.2 times, McDonald’s multiple may have further room to expand.
What is the Price Target for MCD Stock?
The average MCD stock price target of $292.10 implies 8.2% upside from here. That’s a modest, albeit relatively low-risk, gain for the cautious bulls out there. With a “Strong Buy” consensus rating, analysts are still “lovin’ it.”
American Tower (NYSE:AMT)
American Tower is a cell-tower firm that’s endured quite a bit of volatility in recent months. Over the past year, shares are off about 10%. Currently, shares are down around 25% from highs not seen since 2021.
Ongoing rate hikes and inflationary headwinds have applied pressure on the name. Still, American Tower’s long-term thesis seems intact. The 5G boom is still in play, and the firm still has a lot of room to cover as it brings wireless technology across its markets of interest.
Despite the name, American Tower is an international play on cell towers. While small-cell tech may eventually take the place of cell towers, I’d argue that there’s plenty of room for both. 5G wireless may be the new norm for some, but a lot of investment still needs to be made to improve network speed, coverage, and reliability. In essence, the 5G trend is still very much in play, and I don’t think a recession will curb the long-term demand for the latest and greatest wireless tech.
At a 17.8 times price/FFO multiple (FFO stands for funds from operations, an earnings metric used by REITs), AMT isn’t exactly a bargain when compared to the sector median price/FFO of 14 times. That said, shares do have a 2.6% dividend yield that’s higher than their five-year average of 1.9%. The company also trades at a 10 times price/sales ratio, lower than its five-year average of 12.1 times. Therefore, the stock is historically cheap compared to itself, making it relatively attractive.
What is the Price Target for AMT Stock?
Wall Street analysts are upbeat on American Tower. Yes, there are headwinds that have taken precedence over longer-term tailwinds from 5G. However, analysts are fans of the name’s risk/reward after the last few years of choppiness. The average AMT stock price target of $249.89 implies 15.7% gains for the year ahead.
The Takeaway
Though defensive stocks seem better able to fare than the broader averages once the economy stalls out, investors should be careful how much of a premium they pay for defensive exposure. Fortunately, Wall Street still sees value in the following two names.
Between MCD and AMT shares, analysts expect a bit more from the latter from current prices. Nevertheless, I’d not be afraid to own both.
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