Investors are getting scared about the possibility of a recession. They have good cause to feel that way: Inflation is rampant and at 40-year highs, gas prices are at an all-time record north of $5 per gallon, and the Federal Reserve just implemented a 75 basis-point interest rate increase, the largest hike in over two decades.
Last week, global investors withdrew over $30 billion from equity funds, the largest wave of selling since 2020 during the depths of the pandemic. The tech sector alone saw a near-half billion outflow of funds. Bond funds saw an equal amount taken out, and money market accounts were brought down by over $40 billion.
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Investors are moving to cash in a big way, leading the tech-laden Nasdaq 100 to tumble 32% so far this year. While understandable, smart investors should have been keeping some powder dry anyway to take advantage of this situation. A recession means stocks that were overvalued because of the extended bull market have suddenly now become affordable.
The following two companies could be the bargain buys of the year -- and beyond.
1. Apple
Apple (AAPL -1.22%) is down about 25% from the all-time high of $182.01 that it hit late last year. Much of this can be chalked up to concerns about ebbing demand for the iPhone. Smartphone demand is seen declining as the upgrade supercycle is getting long in the tooth -- but there's still plenty of reason to bet on Apple being able to run far ahead of the field.
First, the iPhone 14 is arriving later this year. Suppliers for the device are bullish ahead of its release and confident that the product will be unaffected by shipment delays and the broader market slowdown. Apple also just released the latest MacBook Pro, and is refreshing the entry-level iPad with a USB-C port.
Macs enjoyed yet another quarter of record growth last quarter, with sales rising 15% to $10.4 billion, and in fact, each of the past seven quarters has been a record for the line. And though sales of iPads actually fell 2% last quarter, that was solely due to continued supply chain constraints. Demand for the device remains high and Apple's installed base of iPads reached a new all-time high during the quarter.
Morgan Stanley analyst Katy Huberty told investors in a research note that Apple's Worldwide Developers Conference earlier this month displayed the company's "innovation engine at full throttle." While there is the potential for even the high-end consumer to ease back in the current environment, Apple has other levers to pull.
For one thing, services will continue to grow in importance, and segment revenue in the most recent quarter hit $19.8 billion, now accounting for over 20% of the total. According to JPMorgan, Apple Pay has a chance to rake in $4 billion by 2026, and that figure could get a further boost thanks to the company's new Apple Pay Later service. What's more, Apple's Arcade could generate as much as $1.2 billion in the growing mobile gaming market.With the potential future release of augmented and virtual reality glasses, and maybe even the much-rumored Apple Car, there are plenty of opportunities left for this tech giant.
2. Verizon
The rollout of 5G networks over the coming years is a major catalyst for Verizon (VZ 0.90%) as consumers spend more on enhanced video, AR and VR, and digital gaming over 5G networks (Apple is likely to benefit, too).
Still, don't expect Verizon to appreciate in value like other tech stocks -- it's a mature company in a mature industry. But you will find it to be a steady performer. Its stock is down only 6% this year, reflecting the stability of its business.
Revenue continues to expand at rates above those from just a few years ago, rising over 4% last year to $133.6 billion compared to a 2.7% drop in 2020 and a less than 1% increase in 2019. Profitability is also markedly improving, jumping 24% in 2021 to $22 billion versus a near 8% drop in 2020.
Verizon remains the largest carrier, ending 2021 with 91.4 million postpaid phone connections and 23.8 million prepaid connections. AT&T had 81.5 million postpaid and 19 million prepaid subscribers, while T-Mobile had 70.3 million and 21 million, respectively.
Verizon has lost customers, dropping a net 36,000 in the first quarter, but that was significantly better than the 178,000 it lost a year ago. Its business segment, on the other hand, added 256,000 net postpaid subscribers.
Still, AT&T and T-Mobile are adding customers, over half a million each. But Verizon has finally begun to see traction after launching its home broadband access through a 5G network. In the first quarter, Verizon saw a 35% sequential increase in millimeter wave traffic, which is considered to be the industry's futrue and where Verizon is already the leader.
The company also just launched its Verizon Home Internet promotion, which gives 5G mobile customers the chance to get 5G internet service in their homes for $25 a month, whether it's the LTE Home, 5G Home, or Fios service. The price is guaranteed for up to four years, which could prove attractive in these inflationary times.Customers are more willing these days to switch carriers for the best price and keeping them tethered to the service not only maintains its customer base, but helps in limiting churn and new acquisition costs.
The telecom giant is also a reliable and safe dividend stock, which is currently yielding 5.2% annually. It began making its payout after going public in 2000 and has increased it every year since 2006. Verizon is easily a stock for 2022 and beyond.
