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Best ETFs to Buy in a Recession for August 2022

By:
Jason Bodner
Published: Jul 28, 2022, 15:02 UTC

We’ve had some sizeable dips in the market lately, followed by quick bursts upward. Interest rates have increased, but there is still talk of a possible recession ahead even though some data point to growth.

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In this article:

So, how is Big Money reacting? After lots of big selling, buying is picking up again in small volumes. Let me explain.

Markets and Big Money in the Last Six Months

My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. We follow Big Money because our research shows Big Money moves markets.

We created the Big Money Index (BMI), which is a 25-day moving average of large-scale investor buy and sell activity. Over time it has shown itself to be a leading indicator of where markets may go. The BMI went oversold in late May, which is a hugely bullish long-term signal. It rallied for a bit then hit oversold again on July 14. And like last time, it bounced up again:

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There was monster Big Money selling in stocks, up until recently – notice the red lines drying up:

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The story is similar with ETFs, though the buy action is much smaller than it is with stocks:

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This month’s ETF picks have long-term value appreciation in mind, even if times get tougher. They center on energy and technology, which should see growth over time and can pay some nice dividends. The best ETFs to buy in a recession for August 2022 are: MLPX, IYH, XOP, and QMOM.

Long-term investors should look for ETFs (and their stocks), with great setups. Remember, ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.

Now, let’s get to the best ETFs to buy in a recession for August 2022.

Global X MLP & Energy Infrastructure ETF (MLPX) Analysis

This ETF can help weather recession storms due to its hefty current dividend yield of nearly 6.1%. MLPX holds excellent stocks, and their quality may prove durable during downturns. While markets overall have lost value, MLPX is up 17.4% on the year so far:

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MLPX holds many solid energy stocks. One example focusing on liquified natural gas is Cheniere Energy, Inc. (LNG). It has three-year sales growth of 35.7% and minimal debt. Here is the one-year Big Money action for LNG:

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iShares U.S. Healthcare ETF (IYH) Analysis

As a low-liquidity ETF, IYH can be volatile. That said, its holdings include tremendous U.S. health care firms and it pays a current dividend of more than 1.1%. IYH has been choppy for much of the last year, but is up more than 1.3% in the last month:

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One great stock IYH holds is Johnson & Johnson (JNJ). This health care giant has seen one-year sales growth of 13.5% and sports a profit margin of 22.3%. Earnings have been strong too, growing 13.3% over three years. In the last year, Big Money bought JNJ 12 times:

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SPDR S&P Oil & Gas Exploration & Production ETF (XOP) Analysis

Moving to the energy sector, XOP holds many great companies focused on exploration and production within oil and gas markets. This ETF is huge, so there should be no liquidity issues, and it pays a more than 0.9% current dividend. XOP has seen Big Money action throughout the past year and is up 57.3% in that time:

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A fantastic stock within XOP is Coterra Energy Inc. (CTRA), an independent energy firm focused primarily in Pennsylvania. CTRA has growing sales (one-year sales growth of 161.2%) and three-year EPS growth of 106.0%. In the last year, CTRA has attracted lots of Big Money. Each blue bar below shows when it was a Top 20 Big Money buy:

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Alpha Architect U.S. Quantitative Momentum (QMOM) Analysis

This ETF focuses on market momentum or outperformance, using a rules-based methodology to identify up to 100 equities with high relative momentum. QMOM is another low-liquidity ETF, so it experiences some choppiness. But it’s up more than 4.2% over the past month, offers a more than 1.2% current dividend, and is loaded with great stocks:

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One rock-solid stock within this ETF is Cal-Maine Foods, Inc. (CALM), a U.S. egg producer. Inflation and demand have helped CALM a lot, as has Big Money. CALM has one-year sales growth of 31.7%, three-year EPS growth of 2,061.6%, and a profit margin of 7.5%. Plus, it jumped 47.0% over a year’s time:

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Here’s a Big Money recap:

  • When Big Money buying heats up, stocks and ETFs tend to rise
  • Deep selling on great quality can be a phenomenal opportunity
  • Repeated buying usually means outsized gains

Bottom Line and Explanatory Video

MLPX, IYH, XOP, and QMOM are my best ETFs to buy in a recession for August 2022. These picks can climb higher, in my opinion, largely because they each hold great stocks. With markets rocky and possible recession ahead, these ETFs show great long-term potential and durability.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds no positions in MLPX, IYH, XOP, QMOM, LNG, JNJ, CTRA, or CALM at the time of publication.

Contact:

https://mapsignals.com/contact/

About the Author

Jason Bodnercontributor

Jason is a seasoned equity investor and quantitative analyst. He is currently co-founder of research and analytics firm, MAPsignals.com, focusing on identifying outlier stocks by following the Big Money.

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