Investing

Stop Fearing a Recession, Buy These Stocks While They Are Still Cheap

Chris MacDonald

Published: August 20, 2024 2:45 pm

During the current market correction and potential recession, volatility remains high with many investors now increasingly pricing in a potential market crash. There are certainly reasons for such a pessimistic view, with many measures of the U.S. economy starting to show cracks, and various macroeconomic indicators flashing red.

That said, most recent dips have been bought, and the stock market itself continues to look healthy. Amplified bets that the Federal Reserve will not only go on an interest rate cutting path this year, but will engage in more of a cutting spree, have bolstered investor expectations.

That said, with recession fears increasingly taking a greater mind share for many investors, holding long-term blue-chip stocks that can weather economic storms and come out the other side relatively decently-positioned is a strategy many are looking to employ. The following three stocks could fit such an investor profile well.

Canadian National Railway (CNI)

For one, there is increased speculation that CN Rail may be pursuing a deal in the U.S., after previously losing its bid in high-profile fashion to CPKC for Kansas City Southern’s assets. A future deal could enhance the company’s scale and reach, and provide more pricing power on its routes, which often need to be blended with other railways.

CN Rail has ample capital and is well-positioned for future rail deals, though U.S. regulatory hurdles may delay progress. Given its low 18 price-earnings ratio and potential for significant growth over the next decade, CNR stock appears undervalued. The company’s 2.2% dividend is expected to grow as the company boosts cash flows.

Now, CN rail may not be the flashiest or most innovative company out there. But CN Rail does offer stability with its strong market position and high barriers to entry. Despite economic pressures building and rising labor costs a concern for investors, this stock has been a proven long-term winner. Indeed, I think CNI stock ought to be considered undervalued following its recent dip. With a 15-year average annual growth rate of 14%, CN Rail is a solid long-term pick.

Micron Technology (MU)

Known more as a memory chipmaker, Micron Technology (NASDAQ:MU) focuses on cyclical industries tied to market demands for a range of tech products. According to its historical performance, the company now has a broader semiconductor cycle, with a number of impressive fast-growing revenue streams. Despite recent impressive returns, Micron’s drop from its peak reflects market caution about potential downturns. This drop, however, doesn’t necessarily end its high-growth phase.

Micron has developed its advanced HBM3E architecture which offers superior bandwidth and efficiency relative to its peers. This technology powers Nvidia’s latest GPUs, including the H200. Micron also introduced PCIe Gen6 SSDs to meet AI demands, enhancing data transfer and reducing boot times. The company’s AI chip will be featured in Lenovo’s ThinkPad P1 Gen 7 laptops. Micron’s innovations have boosted its Q3 2024 earnings to $6.8 billion, up from $3.75 billion the previous year.

Historically, Micron’s business cycle shows a rather consistent upward trend. While past results don’t guarantee future outcomes, factors like AI growth, rising smartphone sales, and tech-heavy vehicles signal strong future demand for Micron’s memory chips. This increased memory demand suggests Micron’s growth phase may continue.

Taiwan Semiconductor (TSM)

In the fast-paced and high-growth AI sector, Taiwan Semiconductor Manufacturing (NYSE:TSM) remains an excellent stock to consider. The company holds an impressive 61% market share of global chip fabrication. As Nvidia and others design advanced GPUs, TSMC manufactures them. With growing demand and increasing geopolitical tensions, TSMC’s importance is rising. The company is investing $6.6 billion in a new Arizona plant and reported 45% year-over-year growth in July, with a 65% rise in stock this year leading to a consensus buy rating among analysts. 

TSMC shares recently rose after July sales surged to $7.94 billion, up 24% from June and 45% year-over-year. The company anticipates it will report $23.2 billion Q3 revenue, exceeding prior estimates. Revenue surged 31% compared in the past year, and despite a 1.5% rise in ADRs, the company’s stock price continues to trade below levels affected by Donald Trump’s comments on Taiwan’s defense contributions.

Next week, the company will break ground on its first European factory in Dresden, Germany. This $11 billion plant, where TSMC will hold a 70% stake, aims to reduce production reliance on Taiwan amid Chinese threats. With its new European Semiconductor Manufacturing Company (ESMC) deal, the project will be the biggest investment in Germany and makes TSMC a strategic global investment long-term investors should consider making right now.