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Globally, the investors are concerned about the ongoing macro-economic issues arising on the back of the Chinese slowdown due to recent outbreak of COVID-19 that have affected more than 85 countries so far, ongoing US-China trade conflict, weak European growth, Brexit issue and weakening of the currency.
In the last seven-day period, the main indices on ASX tumbled down and closed in red. Though, some of them did see an occasional rise in between, but majority of the indices were trading downwards. Also, there has been a huge sell-off around the world mostly prompted by the epidemic of Coronavirus.
Given the backdrop of the existing Coronavirus outbreak and its effect around the world, probabilities of recession are increasing. During such a period, how and where should the investors seek recession proof stocks? What does recession proof stocks comprise of?
The answer to the above questions are economy’s ‘defensive stocks’ that are able to perform during the economic slowdown when consumers are consuming less, and the businesses sales are going through rough patch. Some of the sectors that are considered defensive are healthcare, utilities and consumer staples, banks, real estate investment trusts (REITs) etc.
The specific example of stocks that falls under the ‘defensive stocks’ category is ASX listed companies such as - Sydney Airport, Transurban, Telstra, Cochlear, Amcor, CSL, Wesfarmers, InvoCare, Propel Funeral Partners and ASX Limited. However, the performance of the defensive stocks is not guaranteed, because stocks can always be affected by the internal company-specific factors.
In the meantime, the G-7, that consists of the U.S., Japan and Germany, among others, declared after weeks of warnings from companies that the COVID-19 virus will affect their financial performance. The Economic groups have also warned of deteriorating condition of global economic growth. As a result, before the Fed took the steps to cut the interest rate, the Reserve Bank of Australia had taken the step to cut its key interest rate to a record low 0.5%. This reflects that the travel and hotel industries will be the worst affected ones.
Let’s have a look at the stocks that might be least affected amid this upcoming recession.
Washington H. Soul Pattinson and Company Limited (ASX: SOL)
Growth in Dividends:
A listed investment entity, Washington H. Soul Pattinson and Company Limited (ASX: SOL) invests in multiple sectors, private equity or venture capital, retirement living, property, corporate loans and cash. The Company also helps other entities to undertake strategic mergers & acquisitions and help them in raising capital.
From 2000, the company has been raising its dividend (both interim &final) at the compound annual growth rate of 12.3%. Further, the Company was able to outperform All Ordinaries Accumulation Index in the long run.
On 9 March 2020, SOL last traded at $18.110, slipping down by 7.081 % from its last close. Meanwhile SOL stock fell 10.51% in the past three months duration, as on March 6th, 2020 and traded at a P/E multiple of 18.82x.
InvoCare Limited (ASX: IVC)
Strong FY 19 Performance:
InvoCare Limited (ASX: IVC) is the largest operator of private cemeteries and crematoriums in Australia. The company has various brands under its belt, which includes White Lady Funerals that has presence in Australia and New Zealand and has also expanded into Singapore region.
The Company for FY 19 has reported 3.5% rise in operating sales revenue to $494.1 million, 21.4% increase in operating EBITDA to $144.4 million & 54.6% growth in the net profit after tax to stand at $63.8 million.
In FY 19, the number of deaths had risen back toward the long-term trend as the Company posted 2.9% rise in the deaths compared to a fall of 3.3% in 2018. For FY 19, the Company will be paying the final dividend of 23.5 cents per share fully franked compared to 19.5 cents paid in 2018 on 17 April 2020.
FY 19 Financial Performance (Source: Company’s Report)
On 9 March 2020, IVC last traded at $13.480, moving down by $2.671 from its last close. Meanwhile, IVC stock has risen 7.70% in the last three months as on March 6th, 2020 and traded at P/E multiple of 24.82x.
Propel Funeral Partners Limited (ASX: PFP)
Total funeral volumes for the first seven weeks of 2020 are significantly higher:
Propel Funeral Partners Limited (ASX: PFP) is the second largest player in the Australian and New Zealand funeral market.
For the first half of 2020, the Company reported 21% rise in operating sales revenue to $57 million and 42.1% increase in operating EBITDA to $16.6 million. However, for 1H 2020, the Company has delivered 47.5% fall in the net profit after tax to $3.4 million. There has been 17.8% rise in the Funeral volumes to 6,646 on pcp. PFP has available funding capacity of approximately $65 million to continue its growth strategy. Moreover, PFP’s total funeral volumes for the first seven weeks of 2020 are significantly higher than the PCP.
On 9 March 2020, PFP last traded at $3.130, plunging down by 5.723 percent from its previous close. Meanwhile, PFP stock has risen 4.73% in three months as on March 6th, 2020.
Duxton Water Limited (ASX: D2O)
28.4% increase in the NAV per share in FY 19:
Duxton Water Limited (ASX: D2O), an investment vehicle that services the water requirements of various Australian primary production enterprises like dairy, viticulture, citrus, broadacre, olives, almonds, dried fruit etc. to its farming partners. D2O makes an investment mainly in Australian Water Entitlements.
On a fair market value basis, the Company’s portfolio of water assets has posted the growth from $194.4 million in 2018 to $334.6 million in 2019, and its entitlement portfolio have risen from 61.1GL to 83.0GL. In FY 19, the company has posted 28.4% increase in the NAV per share to $1.76.
On 9 March 2020, D2O last traded at $1.370, marginally down by 1.792 % from its last close. Meanwhile, D2O stock has risen 2.20% in the past three months timeframe as on March 6th, 2020 and traded at a P/E multiple of 15.16x.
Woolworths Group Limited (ASX: WOW)
Decent Performance in 1H 2020:
Woolworths Group Limited (ASX:WOW), one of the biggest players in Australia is into retail business. WOW operates general merchandise consumer stores and supermarkets, pubs, food, accommodation, and gaming operations. The company is also involved in the procurement of food, liquor and other products.
WOW for the first half of 2020 ending 5 January, has reported 6% rise in the sales from continuing operations to $32.4 billion and 8.5% increase in the NPAT from continuing operations attributable to equity holders of the parent entity before significant items to $979 million.
On 9 March 2020, WOW last traded at $37.47, slipping down by 1.395% from its last close. Meanwhile, WOW stock fell 0.94% in the last three months duration as on March 6th, 2020 and traded at a P/E of 18.80x.
