3 High Tech Stocks to Buy During a Recession

The latest jobs report has many people believing that we will get through the recession. More than 550,000 new jobs were reported in June, twice as many as expected, and gas prices fell sharply last month, although they were much higher than a year ago.

But those are also signs of a warming economy again, forcing the Federal Reserve to be more aggressive in raising interest rates. That’s why it’s still wise to plan for the worst and hope for the best. A public downturn may still be in our future, and we should brace our portfolios for that possibility.

Picking stocks that can weather the storm and perform well are also the types of companies we should be looking for, and the following three high-tech stocks should outperform no matter what the market does.

1. AT&T

After the Warner Media room moved to the newly built Warner Bros. Discovery In April, AT&T (T 0.64%) Now focusing solely on telecom operations and 5G network deployment, it will deliver the next wave of growth to the industry.

Although AT&T says it is not immune to the effects of the recession affecting the broader economy, it can manage through them and invest for the long-term benefit of customers and investors.

The national rollout of 5G networks should encourage a steady cycle of equipment replacement by consumer and enterprise-level customers. AT&T is seeing the benefit of the system upgrade with a historic net customer addition of 5.5 million net additions in the second quarter, and 789,000 postpaid net phone additions, the largest in a decade.

With an annual dividend yield of 6.1% and a stock trading at just six times trailing earnings and seven times next-year estimates but running at 12 times the free cash flow it generates, AT&T is a stock built for failure and beyond.

2. Broadcom

The 5G release will also benefit chip makers Broadcom (AVGO 0.05%)Much of the revenue will come from the next-gen wireless chips going into smartphones. It’s been 10 years since there’s been any meaningful improvement in mobile download speeds, and the replacement cycle that carries AT&T forward will inevitably push Broadcom up by mid-decade and beyond.

While the mobile component remains a key driver, Broadcom has built additional businesses in the data center and automotive business. In particular, data center growth may be an equally important aspect of its growth story, as Broadcom Chips has seen a 40x performance boost in less than a decade, introducing a new generation of data center switching chips every 18 months to two years.

Broadcom ended the second quarter with $29 billion in hardware inventory and $15 billion in software inventory, up 38% and 7%, respectively, from a year ago. Obviously, any economic downturn will affect results, but it’s sustainable customer demand to get through any tough times.

3. Upstart Holdings

A third member of high-tech stocks struggling to weather the recession is an online lender. Upstart Holdings (UPST -2.24%)At a time when the Fed is raising interest rates, it is an unacceptable counter-choice.

With those huge job gains, federal governors will be hard pressed not to increase rates to cool a potentially overheating economy. That’s why we’re not out of the recession forest yet, but the upstart should still be able to navigate the choppy waters.

Upstart can eschew traditional methods of loan screening to use artificial intelligence (AI), saving borrowers critical time and providing savings to lenders, all without adding any additional risk.

Although Upstart’s approved borrowers typically have lower average credit scores than their approved counterparts, the online lender’s bankruptcy rates are lower than the competition. That means Upstart can offer lenders a wider range of customers, which is important because even in a recession, banks and other financial institutions still need to lend money to stay afloat.

While borrower demand may have hurt the bottom line, Upstart is expanding into new markets like small-dollar loans and auto loans to apply its AI-driven technology to similar success.

Rich Dupree at AT&T and Warner Bros. Discovery, Inc has jobs in The Motley Fool has positions in and Upstart Holdings, Inc. The Motley Fool Broadcom Ltd and Warner Bros. Recommends Discovery, Inc. Motley Fool has a full disclosure policy.