What are two top tech stocks in the event of a recession--and four more if there isn't one?

May 22, 2022 11:00 AM ETMeta Platforms, Inc. (META), GOOG, GOOGLSP500, AMZN, SNAP, ABNB, DASHBy: Chris Ciaccia, SA News Editor83 Comments

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There has been a significant amount of talk about a recession from all walks of finance, including economists, talking heads, journalists and seemingly every other person on Wall Street.

While markets look to be discounting the possibility of the economy going into recession, with many stocks down significantly year-to-date, if the economy does contract, Meta Platforms (NASDAQ:FB) and Google's parent company Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) are the two best picks, according to analyst Justin Post of Bank of America.

Post noted even if both companies' revenue growth slows down, the pair of Internet giants could actually see a boost in earnings during a recession.

Using the last recession as an example, Post said that while Alphabet (GOOG) (GOOGL) saw its revenue growth slow from 43% in the second-quarter of 2008 to 5% in the second-quarter of 2009, and operating expenses only fell from $1.65 billion to $1.56 billion during the time frame. Additionally, operating margins actually increased from 41% to 46% and earnings per share grew 30% year-over-year during that recession period.

"While revenue estimate cuts for advertising stocks are very likely in a recession scenario, we think both Meta ($12 [billion] in expected [Reality Labs] losses) and Alphabet ($5 [billion] in other bets losses) have potential investment spending and bonus accrual flexibility that could enable the companies to grow earnings in a mild to moderate recession scenario with limited to no revenue growth," Post wrote in a note to clients.

Regarding Meta Platforms (FB), Post added that the company's expense guidance, which the Meta (FB) recently cut to a range of $87 billion to $92 billion, gives the company "significant flexibility" that can help stabilize earnings estimates if growth does not start to re-accelerate in the second-half of 2022, as expected.

Earlier this week, Post noted that Meta (FB) has already started to slow down some of its spending, including the pace of investments in its augmented and virtual reality unit, Reality Labs Research.

According to Bank of America's economists, the S&P 500 (SP500) is discounting more than a 30% chance of a recession. This is based on performance, and the fact earnings multiples have come down by 10 points, similar to the 2008 and 2020 recessions.

While many do expect a recession to happen in short order, if, for some reason it doesn't happen, Post noted that a "sustainable risk-on trade" could occur in the fall of 2022 or possibly 2023.

If a recession doesn't come to pass, the investment firm said it prefers "share gainers," which outperformed after the stock market bottom of November 2008. Those "share gainers" include Amazon (AMZN), Snap (SNAP), Airbnb (ABNB) and DoorDash (DASH).

Amazon (AMZN) is likely to gain in e-commerce while Snap (SNAP), Airbnb (ABNB) and DoorDash (DASH) are mentioned as possible market share gainers in their industries. Post noted all three companies rebounded significantly during the short-lived March stock recovery earlier.

This week, a newly introduced bill in the U.S. Senate known as the Competition and Transparency in Digital Advertising Act would force Google (GOOG) (GOOGL) and Meta Platforms (FB) to break up their online advertising businesses.

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