Pro: these two stocks are a ‘fundamental part of the economy’

By:
on Jul 20, 2022
  • Brilliant says invest in companies that are a "fundamental part of the economy".
  • The Diamond Hill CEO likes Caterpillar Inc and Union Pacific Corporation here.
  • Both of her stock picks are down nearly 25% from their respective YTD highs.

Invest in companies that are a “fundamental part of the economy” ahead of a recession that many believe is now a matter of “when” and not “if”, says Heather Brilliant. She’s the President and CEO of Diamond Hill Capital Management.

That makes Caterpillar stock a ‘buy’

One such name that pops out to her is Caterpillar Inc (NYSE: CAT) – the world’s largest construction-equipment manufacturer that’s down nearly 25% from its year-to-date high. Explaining why on CNBC’s “Worldwide Exchange”, Brilliant said:

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They’re manufacturing the equipment needed to move things forward in the economy and mining new rare earths that are critical part of everything that underlies growth in the economy coming out of the technology sector.

According to Motiur Rahman; market analyst at Invezz, $190 a share is the near-term resistance for the CAT stock.

The U.S. central bank is expected to lift rates by another 75 basis points next week after CPI hit a new forty-year high of 9.1% in June. That, in turn, will likely raise the probability of a recession by that much.

Union Pacific is another great pick

Another name that she believes supports the “core functions of an economy” is Union Pacific Corporation (NYSE: UNP) – an Omaha-headquartered transport behemoth that’s set to report its Q2 results tomorrow. Brilliant said:

We see opportunity in Union Pacific. It’s a company that is able to do well when anything sells. It doesn’t matter which parts of the economy are doing well. As long as anyone needs to move anything on the west coast, Union Pacific is there.

Her view is in line with Wall Street that currently rates the stock at “overweight” and sees a 15% upside from here on average.

The U.S. economy shrank at an annualised pace of 1.60% in the first quarter of 2022. Another quarter of negative GDP will check the technical definition of a recession.

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