The economic outlook is currently clouded with uncertainties, with the lingering pandemic, Russian invasion of Ukraine, and lockdowns in China. Meanwhile, in the U.S., the Federal Reserve (Fed) is raising interest rates to fight off inflation.
With such a backdrop, a global recession seems imminent, and according to a survey conducted between March 29 to April 1, by Bloomberg Markets Live, 48% of investors expect the U.S. to fall into a recession in 2023.
There have been 11 recessions in the U.S. throughout history, the first one was in 1953, and on average, the S&P 500 index fell 2.1%; however, in the 2020 recession the index fell 11.2%, and now in 2022 it fell more than 12%.
Picks for you
As a recession seems more likely, Finbold has identified two stocks that should not be bought in the near to medium term due to the risk of poor performance.
Boeing (NYSE: BA)
Shares of Boeing lost over 8% in the trading session on June 13, as investors are pricing in a recession and bailing from the stock, possibly indicating that it will not be a safe haven stock.
Historically, BA was a bad investment during a recession, since the company builds airplanes, which are big-ticket items, with airlines switching to survival mode during recessions and not expansion mode.
In summary, the need to buy new airplanes will decline during a recession. This news comes at a challenging time for the company since in more recent times it has been riddled with difficulties such as the plane crash in China as well as renewed Covid lockdowns. Meanwhile, the company’s debt has swelled over 400% in the past five years, meaning that a lot of demand will be required for the firm to thrive.
Moreover, the shares of the company are now in a downward trend, trading below all daily Simple Moving Averages (SMAs). Slight trading volume increases have been noted in May, which led to a sell-off as shares are now as low as they have been during the initial days of the Covid sell-off.
On the other hand, analysts on Wall Street rate the shares a strong buy, predicting that in the next 12 months the average price may reach $214.33, which is 84.99% higher than the current trading price of $115.86.
Uber (NYSE: UBER)
With the stock price down over 45% year-to-date (YTD) they may look enticing; however, the company’s three business segments seem vulnerable to inflation and recession. Namely, rising gas prices and lowered spending power of consumers can lead to people opting for cheaper alternatives.
During Covid lockdowns, the Uber Eats segment grew to now account for 48% of the company’s revenue, while the freight segment makes up roughly 12% of the revenue. Furthermore, the Mobility segment, 40% of revenue, is usually discretionary since most of the traffic occurs at night when people are socializing in bars and are looking to return home safely. Thus, there is a possibility that all of these segments, especially the last one might suffer if people decide that belt-tightening is needed to weather the recession.
Similar to BA, UBER shares are in a downtrend, trading below all daily SMAs. Noticeable trading volume increases during May and June have led to a further sell-off in the stock as shares are close to their all-time lows.
Conversely, analysts rate the shares a strong buy, predicting that the average next 12 months price could reach $48.85, which is 126.47% higher than the current trading price of $21.57.
All in all, during a recession market participants, could do well if they focus on companies with strong cash flows, earnings, and no scandals.
Further, strong competitive moats and cash on hand can help companies weather the storm of inflation and recession for the benefit of their business and their shareholders.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
