Billionaire Cliff Asness Says Recession Is A Pretty Scary Risk, But Stocked Up On These 2 Stocks

Fears of a recession wreaking havoc on markets aren’t just for the average investor. Even some of Wall Street’s most popular stock pickers worry about the implications.

Citing a troubling disconnect between the current positioning of equities and bonds – essentially, bond market pricing in a recession while equities seem to price in a more optimistic outlook – billionaire Cliff Asness thinks things could get hairy if a recession kicks in.

“If inflation stays sticky or it declines because we’re entering a sizeable recession, it’s equities that I think are in a scary spot,” Asness said recently. “They’re not valued very consistently with bonds.”

That’s not to say the co-founder and CIO of AQR Capital Management — a firm with $100 billion in assets under management — is turning away from stocks. In fact, the wise quantitative investor has stocked up on actions he must believe can stave off any undesirable economic development.

We’ve gone through a pair of his picks in the TipRanks database to see what the rest of the high street has to say about them. Here are the results.

The Cigna Group (THIS)

If a recession is about to mess things up, refuge is often provided by healthcare stocks, a segment seen as capable of withstanding an economic downturn. Cigna could be a good example of their value. The global health services organization is a major industry player, with a market capitalization of over $72 billion and specializing in providing a wide range of healthcare solutions to individuals, employers and to government entities.

The company operates through two main divisions – Evernorth and Cigna Healthcare. Evernorth offers a comprehensive set of services and features that include benefits management, care management, intelligence, and pharmacy solutions. The Cigna Healthcare division combines the former US Medical segment (US Commercial, US Government) and the rest of the International Health business. This division offers medical solutions in different markets with a focus on local needs.

The size and scope of the business is easy to gauge from the business revenue. In the last reported quarter – for 1Q23 – revenue reached $46.5 billion, up 5.7% year-over-year and beating forecast of $1.07 billion of dollars. There was also a beat on the bottom line, as adj. EPS of $5.41 is above the consensus estimate of $5.24. For the outlook, the company raised expectations for both the sales and earnings profile.

Nonetheless, despite the positive market reaction to printing, with the shift in 2023 from value names to technology – and after outperforming last year – CI stocks have taken a hit in 2023.

Clearly, Asness felt the time was right to increase its stake in CI. During the first quarter, he loaded 560,014 shares, increasing his holdings by 95% to a total of 1,152,991 shares. These currently command a market value of over $316 million.

Reflecting this confident stance, Truist analyst David S. MacDonald saw a lot to like about the first quarter report. The 5-star analyst wrote: “We remain bullish on CI after a strong start to 23 marked by balanced growth across segments, top and bottom beats, better MCR and higher forecasts. Importantly, the Appeal and Enhanced 10-Q Disclosures provided additional detail/reassurance regarding exposure to rebate retention/distribution of retail sales, PBM affordability and transparency and we think they should help allay concerns about potential regulatory risk. Finally, the small capitalization business model continues to generate attractive FCFs, providing great flexibility for ongoing investments/expansion. »

These comments underpin MacDonald’s buy rating, while his price target of $375 leaves room for 12-month returns of around 52%. (To see MacDonald’s track record, click here)

Elsewhere on the street, the stock is picking up 4 buys and 8 more holds, for a consensus moderate buy rating. The average target stands at $317.69, suggesting around 28% from current levels. As a bonus, CI also pays a dividend. The current quarterly payment is $1.23, or 1.88%. (See Cigna Stock Prediction)

American International Group (AIG)

Because our next name approved by Asness will turn to the insurance giant AIG. The company is one of the world’s largest insurance and financial services organizations. Operating through various subsidiaries, AIG offers a wide range of insurance products and services to customers in more than 80 countries. AIG’s offerings include property and casualty insurance, life insurance, retirement products and mortgage insurance, among others.

Driven by strong underwriting gains, the global insurance powerhouse beat earnings estimates in its latest quarterly report – for 1Q23. Representing its best underwriting results in the first quarter, property and casualty insurance underwriting revenue increased 13% year-over-year to $502 million. It helped adj. EPS rose from $1.49 in the year-ago quarter to $1.63, while still beating the $1.42 analysts were looking for. And while partially offset by lower income from alternative investments, total consolidated net investment income still climbed 9% to $3.5 billion.

Additionally, the company increased its quarterly dividend from $0.32 to $0.36 per share, the first increase since 2016. The dividend currently pays 2.37%.

It’s safe to say that Asness has confidence in AIG’s continued success. He increased his holdings by 79% in the first quarter with the purchase of 2,557,149 shares. He now owns a total of 5,794,696 shares, worth around $306 million.

AIG also has support from Goldman Sachs analyst Alex Scott. Looking through the latest financial statement, Scott explains why he was impressed with the results. “We were very encouraged by AIG’s earnings report this quarter as it showed favorable growth, further improvement in claims ratio, favorable reserve development despite inflationary pressures, contained catastrophes despite high experience industry, with net investment income benefiting to a greater extent than expected from higher interest rates and corporate spending discipline,” Scott said. “In addition, we estimated that the discussion around 1) the company’s ultimate level of spending and 2) improving US retail margins was also positive for the company’s earning power.”

Accordingly, Scott rates AIG stock as a buy, supported by a price target of $79. The implication for investors? Upside potential of around 50% from current levels. (To see Scott’s track record, click here)

Overall, 13 analysts have responded to AIG’s reviews over the past 3 months, and these break down into 8 Buys and 5 Holds, resulting in a Moderate Buy consensus rating. Based on the average target of $67.69, a year from now investors will be sitting on returns of 28%. (See AIG Stock Forecast)

To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.

Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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