Amid a more precarious economic backdrop, analysts at Macquarie think that stocks including Visa Inc., Planet Fitness Inc., Trade Desk Inc., and lotto operator International Game Technology PLC could demonstrate "fundamental resiliency."
Within the payments universe, the Macquarie team gravitates toward Visa and Mastercard Inc., two stocks that "have been holding the line through the current spike in volatility" and have previously shown to be "impressively resilient through recessions thanks to their scale, innovation, and structural tailwinds in digital payments."
The "structural growth" of the card networks could help them hold up in the face of any weakness in volumes, the analysts continued.
On Mastercard specifically, they like the company's positioning in cross-border payments, emerging markets, and newer areas such as digital identity and open banking. For Visa, they note that the company has taken "proactive measures" on cryptocurrency that "could help close the proportional gap on developing-market exposure with rival Mastercard and position Visa to benefit from greater economic participation in weak-currency markets."
Within the leisure sector, the analysts see promise in a newer name that wasn't public at the time of the last economic downturn. Planet Fitness (PLNT) could continue to offer an attractive value proposition for consumers, they reason, by appealing to people looking to "trade down" from more expensive gyms, as well as appearing "too cheap to cancel" for current members.
"Store unit economics are back to historic levels, and demand per existing location is accelerating, highlighting the runway ahead for new unit growth," they wrote. "The company has plenty of both domestic and international franchising ahead in our view, and a value proposition to the consumer if macro sentiment deteriorates ($10/month base membership, $24.99/month for Black Card members)."
Madison Square Garden Sports Corp. , which manages the New York Knicks and Rangers, could be another leisure play, per the analysts. The company "has significant contracted revenue from sports media rights, and we argue the heritage of its teams, not to mention in the largest market, should drive and hold value through broader market turmoil," they said.
Software picks include ServiceNow Inc., Atlassian Corp. PLC $(TEAM)$, Instructure Holdings Inc. $(INST)$, and VMware Inc. $(VMW)$, based on the assumption that "best-of-breed software-as-a-service ('SaaS') companies can provide shareholders with solid cash-flow-generative assets that are supported by sticky enterprise customer bases."
ServiceNow has a "substantial global enterprise customer base" that "provides ample cross-sell and up-sell opportunities, which can support growth even in adverse market environments," while Atlassian has a strong self-service sales model that allows it to limit marketing spending, the analysts wrote. Admittedly, Atlassian has "relatively higher exposure to small to mid-sized businesses," but the Macquarie team says the company showed at the start of the pandemic that it could withstand events that pressured smaller businesses.
As for Instructure, the analysts note that the company caters to educational customers in the higher-education and K-12 markets. "We like Instructure's positioning as the market share leader in the learning management system ('LMS') market for U.S. higher-education institutions, which we believe are a stable customer base similar to corporate enterprises," they wrote.
VMware holds promise "because of the upcoming tailwinds from its transition to a SaaS model (vs. perpetual license), sticky customer base, and implicit put option from the recently announced acquisition by Broadcom $(AVGO)$," they continued.
The analysts are also betting that consumers will still play the lottery in tough times, noting that the lottery business was "resilient" in the last financial crisis and at the start of the pandemic, while the businesses that operate in this industry have entrenched relationships.
"In our view, the lottery industry is a remarkably stable and consistent business, displaying consistent growth through economic cycle," the analysts wrote, highlighting International Game Technology PLC $(IGT)$ and NeoGames S.A..
Gaming companies could hold up, too, with the analysts calling out Penn National Gaming $(PENN)$, MGM Resorts International $(MGM)$, and Caesars Entertainment Inc. $(CZR)$ as favored picks.
Additionally, they see potential in ad-technology companies Applovin Corp. $(APP)$, The Trade Desk (TTD), and IronSource Ltd., citing "their relative resilience through targeted marketing, secular growth in mobile and connected TV, and low valuation."