Recession Resistant Stocks

There is a good chance we are headed into a recession, yet there are stocks worth owning. I believe that there are opportunities available where one can do well in a bull or bear market. Drugstore chains CVS and Walgreens both trade at a little over ten times next years earnings estimates. While a  recession will hurt business, earnings are unlikely to fall off a cliff. They have secular tailwinds in that aging baby boomers will be filling more prescriptions and a move to generics benefits them. Both companies are aggressively returning cash to shareholders via share repurchases and dividends.  I own both names.

Vodafone owns wireless communication businesses around the World. They trade at a double digit forward free cash flow yield and an 8% dividend yield. I don't believe many people will give up their cell phones, even in a recession. Impoverished people in third world countries have cell phones. I don't see consumers giving up cell phones en masse, even in a recession. I own Vodafone as well.

When you read that I am long stocks, do not think that means I am an economic bull. I am very worried about the economy and uncertain about the future. However, there are businesses that should be fine in a recession and that are trading at very attractive prices.

 

8 comments:

Onlooker from Troy said...

How do you get 8% yield on VOD?  I show it as about 5.1%

Tsachy Mishal said...

They are paying a one time dividend in conjunction with their $5 billion dividend from VZ. It is very likely that VZ will give that dividend every year and they said they plan on returning 70% of that to shareholders.

Tsachy Mishal said...

They cannot commit to the dividend every year because Verizon Wireless
has not committed but its very likely based on the fact that
1. Verizon, the parent company, needs the dividend
2. Verizon Wirelles execs said they dont plan on building up cash.

Onlooker from Troy said...

Actually, as I look at it more closely, it's hard to tell for sure.  They don't have a consistent, set, quarterly dividend, and it depends on the exchange rate too, I suppose. 

That doesn't make it a bad stock, but it threw me off and I saw different div numbers at a couple of different sites.

Tsachy Mishal said...

I believe British companies dont generally pay quarterly divdends. They pay one larger one and one smaller one each year.

Onlooker from Troy said...

Thanks

shamX08 said...

Vodaphone doing well? I am a little worried actually...well it all depends on how long is the recession. During initial recession people may still hold on to the phone. If recession is worst, we all wanna cut cost.So the usage or buying of new phones will decline. As such, telcos will not be doing too well. Instead they may have negative sales and subscriptions. Over a longperiod, it will eat into their saving and return on equity/asset may not look good. Voda phone in my view is not a recession resistant stock....well it all depends on how long the recession last!

Tsachy Mishal said...

Im not saying that Vodafone will not be effected on the margin. That is why I wrote recession resistant rather than recession proof. But the fact that the stock is trading at such a low multiple means the stock would still be cheap with anything but a major drop in business which I simply don't see. I see people giving up their land lines before they give up their cell phones and I dont see them having no telephone. At least not en masse.