Recessions are quite common occurrences, but they can still be a distressing experience if you are not mentally prepared. Since 1929, the US economy has gone into recession 15 times, or approximately once every six years. Still, as desperate as a recession may be, having a portfolio full of companies that can withstand these inevitable crises and thrive in prosperous economic times can help investors to face uncertainty.
With that in mind, let’s take a look at three stocks that proved their worth during the recent recession, but also offer tremendous opportunities for growth in the coming months and years.
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Apple: The poster boy for resistance to the recession?
Even when the 2020 recession hit many tech companies, Apple (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 protect the company’s results during the crisis.
Even at the height of economic uncertainty, the iPhone maker was able to modestly increase its revenue, while many companies saw sales plummet. This was driven by a historic record for its service segment and a quarterly record for wearables. The recurring nature of its service revenue will help to isolate Apple during any future recession.
This is not all that Apple has in its favor. Even as the company works towards its well-publicized plans to have no cash, Apple still has one of the biggest hordes of money out there. The company boasted nearly $ 193 billion in cash and marketable securities on its balance sheet and about $ 99 billion in debt at the close of the last quarter.
Finally, we have the benefit of the retrospective to assess the performance of Apple’s shares since the impressive market decline that occurred between mid-February and the end of March. Since its peak, shares of the iPhone maker have fallen just 31%, while other technology stocks have been devastated, losing half or even two-thirds of their value. From rock bottom, Apple’s shares came back in full force, rising 132% as of the time of this writing.
As a result of the stock price increase, dividend yield fell to 0.63% (at the time of this writing), but as Apple funds quarterly payments using only 25% of profits, payment is still among the safest for there.
Given the many things working in its favor, it would be difficult to find a more suitable stock than Apple to buy during a recession.
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Roku: Future recessions will be broadcast
One of the undeniable consequences of recessions is unemployment and, with fewer people in the workforce, more people are at home. When these unfortunates are not looking for a job, many are likely to be killing time watching streaming video.
This and where Roku (NASDAQ: ROKU) goes into. The channel agnostic platform provides access to more than 10,000 channels on their eponymous streaming devices. This is not everything. Roku’s connected TV operating system (OS) is the first choice among television manufacturers and is found on 38% of devices sold in the United States and 31% of those sold in Canada – making it the # 1 smart TV operating system 1 in sales in both countries.
Those looking for evidence that the company will not only survive, but also thrive during a recession, need look no further than last year, which provides ample evidence of Roku’s resilience. During the first quarter of 2020, Roku’s active accounts increased 37% year-over-year, while streaming hours on its platform increased 49%. Average revenue per user (ARPU) increased 28%, helping to boost revenue 55% higher. These trends continued into the second quarter, as active accounts increased 41% and streaming hours increased 65%. This raised ARPU by 18%, while revenue increased by 42%.
These metrics helped Roku’s stock to recover from an early beating. Although he lost more than half of his value in the early days of the recession, Roku has since been one of the top performers in the market, gaining more than 550% from his rock bottom in mid-March.
Roku is at a critical point, on the verge of being consistently profitable as he leverages his growing viewer base. In addition, with nearly $ 1.05 billion in cash on its balance sheet and just $ 407 million in debt and operating lease obligations, Roku has enough resources to weather any storm.
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Microsoft: a port in the storm
Microsoft (NASDAQ: MSFT) is a robust company in technology and business systems, but it was the diversity of its businesses during the recent recession that helped the company maintain its growth. In Microsoft’s third fiscal quarter (ended March 31, 2020), revenue grew 15% year over year. At the time, two statements in the company’s financial release stood out.
First, CEO Satya Nadella noted, “We have seen two years of digital transformation in two months.” This is a sentiment that we hear echo in technology circles in the following months. This reality is in line with Microsoft’s strengths, as one of the undisputed leaders in cloud computing.
Second, in the disclosure of the company’s results was this simple statement (emphasis mine): “In the third quarter of fiscal year 2020, COVID-19 had minimal net impact on the company’s total revenue. “It helps to illustrate that, during one of the most significant economic turmoil in modern history, Microsoft was left largely unscathed.
During the company’s fourth fiscal quarter (ended June 30, 2020), its growth continued unabated, with revenue increasing 13% year over year. It is important to note that, despite the slowdown in the growth in productivity of the company and the business systems segment, there has been an increase in cloud computing and games. This shows how the diversity of your businesses will help sustain your growth in difficult times.
Recession fears initially led stocks to drop 26% between February and March, but bottoming out, Microsoft shares have risen 56% as of the time of this writing.
The company maintains a respectable dividend yield of around 1% and, with a payout rate of 33%, this dividend is as safe as possible. Microsoft also has a rock-solid balance sheet, with almost $ 138 billion in cash and short-term investments, almost double the $ 71 billion in debt and operating leases.
Given the company’s numerous advantages, Microsoft is a mandatory action in the face of economic uncertainty.
Data by YCharts
A final note
While each of these companies proved to be resistant to the recession during the recent recession, it is important to separate business performance from stock prices. Although each company continued to grow, as illustrated by its best financial metrics, this did not prevent stocks from experiencing the enormous volatility that is an integral part of an economic slowdown.
This helps to illustrate one of the secrets to successful investment: focusing on the underlying business long enough for the stock price to catch up with reality.
In investing, as in life, there are simply no guarantees. However, given the performance of each of these companies during the recent unpleasant times, they are even more likely to praise future recessions.