This past summer, the chorus of voices anticipating a recession -- a decline in economic activity -- reached the loudest levels since at least the financial crisis of 2008-2009. The yield curve was inverted, the U.S.-China trade war raged on, the Federal government was running record deficits, and some economies around the globe (looking at you Europe) were sliding dangerously close to economic contraction.
Many of those worries have since subsided, and the stock market has surged and is sporting new all-time highs. Still, some investors may yet fear a recession is on the horizon. After all, such events take time to develop once the initial signs are observed. Nevertheless, selling out of all stocks would be a mistake. Three that can help batten down the hatches are AT&T (T -0.16%), Comcast (CMCSA -0.21%), and Facebook (META 1.05%).
One person's trash is another's treasure
AT&T has turned into a polarizing stock, especially since its controversial and incredibly expensive $42.5 billion-plus stock takeover of Time Warner in 2018. This past summer, shares of the No. 2 telecom in the U.S. surged after it cut a deal with activist investor Elliott Management, agreeing to slim down on expenses to improve profitability and stating there would be no more major acquisitions.
Shares have cooled since then, though, especially after Wall Street analyst MoffettNathanson gave AT&T a "sell" rating. Suffice to say it's been a wild ride.
Nevertheless, while there's little to be excited about in the way of growth with this stock, this telecom is aggressively getting its debt paid down to improve its flexibility and bottom line. Recent selling has brought AT&T back down to a price to 12 month free cash flow (money left over after basic operating and capital expenses) ratio of just 9.4. The dividend is also yielding 5.5%, the best in the U.S. wireless industry. Plus, mobile and internet services like AT&T offers are more important than ever before. Even in case of recession, it's likely that the company will be just fine as data services will remain a staple for consumers and businesses alike. Ignore the noise with this one and ride those dividend payments through good times and bad.
An even better media conglomerate
Comcast is another communications conglomerate that should do just fine in a downturn. The broadcasting and entertainment segments -- via NBCUniversal here in the states and Sky in Europe -- could suffer in a recession due to consumers migrating from cable and broadcast TV to streaming TV, and advertising revenues take a hit. Comcast has a plan for that, though, as it readies the launch of its own streaming service Peacock in April 2020.
However, there's much more to Comcast. Half of its revenue and two-thirds of its adjusted profits come from its cable communications segment, with over half of that composed of high-speed internet connection sales. That recurring stream of income isn't likely to take a hit. In fact, just the opposite. High-speed connections are on the rise by hundreds of thousands each quarter, increasing by 379,000 in the third quarter of 2019 alone. Paired with growth in business services, Comcast's cable communications segment increased 4% during the quarter.
Of course, this is another business that is a slow-and-steady story, but that's quite OK if concerns with the economy crop up. The internet is a modern staple, and it's unlikely sales will start drying up en masse if there's a recession. Everyone needs high-speed internet and connected services. Plus, Comcast pays a dividend of 1.9% and trades for a reasonable 15.5 times price to free cash flow.
Comcast is dealing with the cable-cutting revolution in admirable fashion, and it should weather difficult economic times as well. Diversified with various entertainment and communications businesses, this stock should be a core holding in rough seas.
Social media is only growing in importance
For my final pick, I want to stray from the typical and predictable and go with beleaguered Facebook. Advertising does typically take a hit in a recession as businesses scale back on spending, but Facebook's platform is still seeing double-digit growth.
Monthly average users grew 8% year over year in Q3 2019, and rising engagement across its namesake app, Instagram, WhatsApp, and other services equated to a 29% increase in revenue. All of that occurred in a time when Facebook has been facing increased scrutiny from regulators and politicians. Social media users, it would seem, are unconcerned and using Facebook's platform more than ever.
Facebook stock has yet to be tested in a recession as it didn't go public until 2012. However, with social media well ingrained in society and an important way people stay in touch, discover new businesses and experiences, and keep up on current events, I think Facebook will be just fine if the economy heads south.
Besides, shares look like a real value right now. Price to free cash flow is at 29.3 -- not exactly a steal. However, that includes a record $5 billion fine levied against it by the FTC earlier this year. Adding that amount back in, Facebook trades for 23.1, and one-year forward price to earnings put the stock at 21.9. That's not a terrible deal for a business expecting north of 20% revenue growth for the foreseeable future, especially considering the S&P 500's one-year forward price-to-earnings ratio is 18.9 (and not expected to grow revenue by double digits).
Thus, it may be nontraditional, but Facebook looks like a decent bet -- whether a recession is knocking at the door in the next year or or not.