Here are six high-tech stocks to buy that may outperform in a recession. These stocks will generally have low price-earnings multiples, will have plenty of free cash flow (FCF), and will also pay dividends. Additionally, they also tend to have large share buyback programs as a result of their FCF generation.
As a result, they won’t perform as badly on the downside in a recession. They will also recover more quickly when there is a chance for better economic conditions in the future.
The point is not that these stocks go up during a recession. It’s just that they will outperform the average stock going down, since most stocks tend to decline during recessions.
Also, the fact that these high-tech companies pay a dividend helps the investor to have a less negative total return.
Let’s dive in and look at these actions.
KT Corp (KT)
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A South Korean telecom and broadband provider, KT Corporation (NYSE:KT) is cheap at just 6.3 times the earnings per share (EPS) forecast by analysts for KT shares this year. Analysts expect slightly higher earnings for the following year, so its valuation for 2023 is even lower going forward.
The company’s dividend is paid once a year and was last set at around 75 cents a share. At $14.13 as of the close on June 30, this gives KT shares a dividend yield of 5.2%.
In addition, it has paid a dividend every year for the last six years.
Its most recent dividend was declared on April 27. It doesn’t go ex-dividend again until December 30, 2022. But the dividend is declared in May 2023. So this is one of the rare cases where you must have owned the stock months before it was declared. declare the dividend. Usually a dividend is declared and then a short time later it becomes ex-dividend.
That means it’s best to buy stocks when they’re cheap, like now. At least then you will know that you will receive the dividend if you stick around until the end of the year.
NRG Energy (NRG)
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NRG Energy (NYSE:NRG) is a Houston, TX-based integrated energy company that produces electricity. It has around 6 million customers.
The stock is cheap with just 9.8x EPS expected for 2022 and 8.2x for 2023. This is based on four analyst forecasts of 20% growth in company earnings to $4.76 per share by the end of 2023.
That’s more than enough to cover the $1.40 dividend you’re paying now. That gives the stock a dividend yield of 3.6% at $38.84 per share as of the close on June 30. In addition, NRG Energy has consistently paid dividends for the last nine years and has increased the dividend in each of the last three years.
As a result, shares are down just 12% YTD, about half the rate of market decline so far.
Additionally, NRG Energy has begun to buy back its shares. Last quarter it spent $188 million on share buybacks.
At that rate, it would cut its shares by 8.2% over the next year, assuming shares remain level. This could allow the company to continue to increase its dividend per share, since there would be fewer shares outstanding.
That makes it one of the best high-tech stocks to buy for outperformance in a recession.
Microsoft (MSFT)
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Microsoft (NASDAQ:MSFT) is one of the best high-tech stocks for investors interested in a stock that can outperform during a recession. One of the main reasons this stock should be able to accomplish that feat is that the MSFT stock is now trading well below its historical averages for valuation metrics.
For example, its forward earnings multiple of 23.8 for the year to June 2023 is now well below its historical average. Morningstar indicates that the average forward P/E has been 28x in the last five years.
Right now, the company’s 62-cent quarterly dividend is likely to increase in September. That will push the annual dividend to more than $2.48, which at Friday’s closing price of $259.58 gives MSFT shares a dividend yield of about 1%.
Additionally, analysts are now forecasting earnings to rise 14% over the next year to June 2023.
On top of this, Microsoft has a very strong buyback program. Last quarter alone it bought back $8.82 billion of its shares, or more than $35 billion on a run-rate basis. That equates to 1.8% of its existing market cap. This will help increase the dividend per share over time.
These factors make it one of the best tech stocks to buy in a recession if you want to outperform other stocks in the future.
Broadcom (AVGO)
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Broadcom (NASDAQ:AVGO) develops semiconductor chips and associated software. It is forecast to produce 8.8% higher earnings at $40.24 per share for the year ending October 2023. That puts it at a forward P/E multiple of just 11.9x.
Broadcom pays a dividend of $16.40 per share per year, which is just 44.4% of its forecast 2022 earnings of $36.97. That shows that the company can easily afford to continue paying this dividend, recession or not.
In fact, every year for the last 11 years, Broadcom has increased its dividend.
AVGO shares, trading at $477.84 as of the close of June 30, have a dividend yield of 3.4%. This is also slightly higher than its four-year average of 3.2%, according to Seeking Alpha. That implies that it could move higher.
In addition, Broadcom is buying back a good part of its shares. In the last quarter alone, it spent $3.29 billion on buybacks. That equates to $13.16 billion annually or 6.82% of its market cap. This makes it one of the best high-tech stocks to buy.
Verizon Communications (VZ)
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Verizon Communications Inc. (NYSE:VZ) is one of the largest telecommunications carriers in the US. It is forecast to deliver earnings growth of 3% to $5.54 per share for the year ending 2023. A $51.64 on June 30, the stock is at a future multiple of just 9.3x by 2023.
This is significantly below its five-year average P/E of 11.39x according to Morningstar’s valuation page. So despite the low growth outlook, the market is not overvaluing the stock.
In addition, Verizon pays a solid dividend of 64 cents and, in fact, has paid this dividend for the last four quarters. That results in an annual dividend payment of $2.56 per share. That gives the stock a 5% dividend yield.
But it’s likely to be higher soon, as the quarterly dividend is likely to increase in early September, when it’s scheduled to declare its next dividend. After all, it has increased its dividend every four quarters for the last 18 years. So, for all practical purposes, the return in the future is likely to exceed 5%.
Morningstar reports that its average dividend yield over the past five years has been 4.47%. That implies the stock could go up to $57.27 (ie $2.56/0.0447). That represents a 10.9% gain from here.
One drawback to the stock is that, so far, it is not buying back its shares. That usually helps tech stocks rise.
Qualcomm Inc (QCOM)
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Qualcomm (NASDAQ:QCOM) is a wireless technology and patent management company. It is forecast to lift earnings 4.8% to $13.18 per share. That puts the stock at a forward P/E multiple of 9.37x. That’s well below its five-year average of 16.6x, according to Morningstar.
Plus, the company’s $3 dividend, giving it a 2.4% yield, is well covered by its earnings. The company is also following a very strong buyback program.
In the last quarter alone, it spent more than $1 billion on share buybacks, putting it at a run rate of more than $4 billion annually. That equates to 2.89% of its current market cap if the stock stays level at current market cap.
This makes Qualcomm one of the best tech stocks to buy now and outperform in a recession.
As of the date of publication, Mark Hake did not hold (directly or indirectly) any position in the securities mentioned in this article. The views expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
