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Recession worries: Defensive stock plays if a recession occurs

Which stocks offer a defensive play in case of a recession? Jim Tierney, AB CIO of Concentrated U.S. Growth breaks down which industrial sectors are most poised to protect investors amid a volatile economic situation.

Video transcript

JULIE HYMAN: Taking a step back to the macro, while the long talked about recession has yet to hit in the US, investors are still facing conflicting trends. So let's talk about some defensive plays, perhaps.

Back with us Jim Tierney, AllianceBernstein Concentrated US Growth, CIO. Jim, you mentioned this before, that in this environment, you want to find places that are going to be more reliable, if you will. So where are some of those areas?

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JIM TIERNEY: I love health care right now. If you look at hospital admission trends a couple of years ago, people were afraid they were pushing off elective surgeries. We were seeing trends down 3% to 5%. Last year, they were flat. This year based off of first quarter numbers, they're up 3% to 5%.

So a company like an Abbott, as an example, which is providing a number of products on the elective side and some non-elective. That's an interesting opportunity. One that I own. One that my clients own. Anything volumetrically related, I think, is going to do pretty well here.

JULIE HYMAN: Abbott's had some challenges, though, related to formula. Does that mean that it's attractive from a valuation perspective as well because of some of those struggles?

JIM TIERNEY: I think it's very attractive. First of all, they have more than $10 billion of cash that they're going to be able to use at some point, whether that's share repurchase or doing accretive M&A. Secondly, when you look at the formula market, there are long-term contracts. And I know the government's looking into that. But there's real stability there.

So I think this is a much more stable growth year health care name that's pretty darn attractive right here.

BRAD SMITH: There's been a ton of focus around financials this year and for perhaps the wrong reasons because of the banking turmoil that ensued mid-March. Do you think about any type of rebound play that could be in sight for financials? Is that clear on the horizon? Or is there still more to be concerned about within that sector specifically as we're looking across the landscape?

JIM TIERNEY: We own Schwab. And I own it as well. I think that's a real opportunity. You have the TD Ameritrade cost cuts. They did another wave of client cut over this past weekend or Memorial Day weekend. You're going to be able to pull out a lot of cost out of that model in 2024.

They are the low cost provider. They're seeing assets come in the door day after day after day. Now, I understand people are worried about cash sorting. But what we're seeing is sorting behavior is really starting to tail off. If the Fed's on pause or if we even get a rate cut late in the year, that is the final nail in the sorting coffin. And I think that would be very well received within financial investors and those stocks.

JULIE HYMAN: I'm really sensing a theme here, at least, in these two examples between Abbott and Schwab. Because there's definitely been headline risk with these two stocks. But you're jumping in. Are there any other examples of companies like that you're looking at?

JIM TIERNEY: I love names that have no controversy internally. Certainly, Microsoft falls into that category and a nice AI play, as well as the cloud business bottoming here. And that's wonderful. So I'm not looking for controversy.

JULIE HYMAN: It was just coincidence, those two that we talked about. Jim, thanks so much for coming in today. It was good to spend some time with you. Appreciate it.

JIM TIERNEY: Thank you.

JULIE HYMAN: Jim Tierney is AllianceBernstein Concentrated US Growth CIO.