Recessions are fairly common, but it can still be a tantalizing experience if you are not mentally prepared. Since 1929, the U.S. economy has fallen into a recession 15 times or about every six years. Even as nerve-wracking as a recession may be, investors can endure the uncertainty by having a portfolio of companies that can withstand this inevitable downturn and also thrive during prosperous economic times.
Keeping this in mind, let’s take a look at three stocks that have proven their steel during the recent downturn, but also offer tremendous growth opportunities in the coming months and years.
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Apple: The poster child for recession resistance?
Although the recession in 2020 defeated many technology companies, appeal (NASDAQ: AAPL) was one of the few who was not hit so hard. The resilience of its customer base and the continued expansion of its service segment helped to buffer the company’s results during the downturn.
Even at the height of the economic uncertainty, the iPhone maker was able to modestly increase its revenue, while many companies dropped sales. It was powered by an all-time record in its service segment and a quarterly record for portable items. The recurring nature of its services revenue will help isolate Apple during any future recession.
That’s not all Apple wants to do. Although the company is working on the well-publicized plans to be cash neutral, Apple still has one of the largest cash hordes. The company boasted nearly $ 193 billion in cash and negotiable effects on its balance sheet and approximately $ 99 billion in debt to close the most recent quarter.
Finally, we have the benefit of hindsight in judging the performance of Apple’s shares since the incredible decline in the market that took place between mid-February and the end of March. From the peak, the iPhone maker’s shares fell by only 31%, while other tech stocks were destroyed and lost half or even two-thirds of their value. From their bottom, Apple shares returned, rising 132%.
Due to the rising share price, the dividend yield dropped to 0.63% (as of this writing), but since Apple funded the quarterly payments with only 25% of the profits, the payout is still one of the safest there is.
Given the many things that work in his favor, it would be difficult to find a more suitable stock than Apple could buy during a recession.
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Roku: Future recessions will flow
One of the unmistakable consequences of recessions is unemployment, and with fewer people in the workforce, more people are at home. If the unfortunate people are not looking for a job, many people will probably lose time watching videos after streaming.
It is true Roku (NASDAQ: ROKU) come are. The channel agnostic platform provides access to more than 10,000 channels on its namesake devices. That’s not all. Roku’s linked TV operating system (OS) is the best choice among television producers and is found in 38% of sets sold in the US and 31% of those sold in Canada. countries.
Those looking for evidence that the business will not only survive but also thrive during a recession need look no further than last year, providing ample evidence of Roku’s resilience. During the first quarter of 2020, Roku’s active accounts climbed 37% year-on-year, while power hours on its platform rose 49%. The average revenue per user (ARPU) increased by 28%, which increased 55%. These trends continued in the second quarter as active accounts rose by 41% and current hours rose by 65%. This increased ARPU by 18%, while revenue increased by 42%.
These measures helped restore Roku’s inventory to an early discount. While losing more than half of its value in the early days of the recession, Roku has since been one of the biggest performers in the market, gaining more than 550% of its bid in mid-March.
Roku is about to be on the verge of being consistently profitable as it leverages its growing base of viewers. On top of that, with nearly $ 1.05 billion in cash on its balance sheet and just $ 407 million in debt and operating lease liabilities, Roku has enough resources to withstand any storm.
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Microsoft: a haven in the storm
Microsoft (NASDAQ: MSFT) is a stalwart of technology and enterprise, but it was the diversity of its business during the recent recession that helped the company maintain its growth. In Microsoft’s fiscal third quarter (ended March 31, 2020), revenue grew year-on-year by 15%. At the time, two statements stood out in the financial release of the company.
First, CEO Satya Nadella remarked, “We’ve seen two years of digital transformation within two months.” This is a sentiment we have heard in recent months through technological circles. This reality plays right into Microsoft’s strengths, as one of the undisputed leaders in cloud computing.
Second, in the company’s earnings release, this simple statement (my emphasis) was: “In the third quarter of the 2020 financial year, COVID-19 minimal net impact on total company revenue. ‘It helps to illustrate that Microsoft emerged virtually intact during one of the most important economic upheavals in modern history.
During the fiscal fourth quarter of the company (ended 30 June 2020), growth continued unchanged, with revenue increasing by 13% year on year. It is noteworthy that, although the growth of the enterprise’s productivity and business systems segment slowed down, it was boosted by cloud computing and games. It shows how the diversity of his business will help sustain the growth in difficult times.
Recession fears initially reduced the share by 26% between February and March, but Microsoft’s shares rose 56% from the bottom.
The company maintains a respected dividend yield of about 1%, and with a payout ratio of 33%, this dividend is just as certain as it gets. Microsoft also has a solid balance sheet with nearly $ 138 billion in cash and short-term investments, which is almost double the $ 71 billion in debt and operating leases.
Given the company’s numerous advantages, Microsoft is a must-share in the face of economic uncertainty.
Data by YCharts
A final note
Although each of these companies was resilient during the recent slump, it is important to separate the operating performance from the share price. While each company continued to grow, as illustrated by their improved financial benchmarks, it could not stop the shares from experiencing the massive volatility that is part of an economic downturn.
It helps to illustrate one of the keys to successful investing: long enough to focus on the underlying business so that the share price can catch up with reality.
In investments, as in life, there are simply no guarantees. However, given the performance of each of these companies during the recent unpleasantness, it is more likely that they will come through with future recessions with great praise.