There are plenty of reasons why investors believe a major recession could be on the horizon. Sticky and persistent inflation has continued to put pressure on low- and middle-income workers. The impressive rate-hiking cycles by the Federal Reserve and other global central banks have attempted to tamp down economic activity to constrain rising prices. These moves, while not explicitly intended to cause a major recession, may do just that. And that’s not taking into consideration any of the myriad other concerns, from ongoing geopolitical conflicts to potential supply gluts in certain sectors.
In short, the current macroeconomic environment is risky. Yet, if central banks do what they’ve traditionally done, and inject liquidity into the markets at the first sign of strain, perhaps we can avoid a major recession.
If that’s the case, below are three stocks to buy or at least consider putting on your watch list. Each has the potential to rocket higher if a major recession doesn’t materialize.
A well-known crypto exchange, Coinbase (NASDAQ:COIN) enables users to purchase and trade cryptocurrencies. Some investors view digital assets as a recession hedge, and after a brutal 2022, COIN is up 137% so far this year.
Much of this gain has to do with the rise in the value of prominent cryptocurrencies. Coinbase’s business model is rather simple. The company earns the lion’s share of its revenue via transaction fees. Thus, when trading volumes surge, it’s good news for Coinbase.
The company’s recent financial results show what happens when liquidity starts to dry up in the crypto market. The company reported a loss of $2.46 per share for the final quarter of 2022. Although this was less than Wall Street’s forecast of -$2.55 per share, it was still significant. Moreover, while revenue of $629 million also came in above expectations, it represented a decrease of about 75% year over year.
That said, if the Fed can coordinate some sort of soft landing, or simply cut rates, Coinbase should be a key beneficiary.
If a major recession is on the horizon, Shopify (NYSE:SHOP) is one stock investors may want to avoid. This company, which has disrupted the e-commerce market by providing solutions for small- and medium-sized businesses to set up online shops, is tied closely to domestic and global economic growth. If businesses stop setting up shops, or turn to other players such as Amazon (NASDAQ:AMZN) to handle their logistics, Shopify’s growth trajectory could be called into question.
Of course, we all saw how impressive Shopify’s growth was in the pandemic environment. Considering its robust sales growth trajectory over this period, many viewed the stock as the “next Amazon.” Investors were mistaken, though, to believe Shopify’s pandemic growth levels were sustainable.
That said, if we can avoid a major recession, Shopify is a company I think is poised for much better year-over-year growth comparisons.
Zoom Video (ZM)
Over the past 18 months, Zoom Video (NASDAQ:ZM) has experienced a number of considerable setbacks. Initially prospering during the pandemic, the business garnered notoriety as one of the biggest winners of the shift to remote work.
Of course, like many pandemic winners, ZM stock has since plunged, losing nearly 90% from its peak of $588.84 in October 2020, due to rising competition and changing macroeconomic conditions.
Like the other names on this list, too much growth was factored in. The idea that pandemic-related tailwinds could continue was wishful thinking.
However, if monetary policy becomes more accommodative and we get another run in higher-risk equities, Zoom is a stock that could really take off. Right now, this is one company that’s high on my watch list.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.