So, are we in a recession yet? Some would argue that we are getting close, some say we are already in one and others would argue that the chaos needs to happen before things go back to normal. And still, others may say that they don’t care and are just looking for stocks that will weather the storm and be stronger, just keep investing for the long-term.
Whatever the case may be, we respect what’s going on and recognize that now is a good time to go over your portfolio to make a few decisions:
- Sell stocks you own that you should have never bought in the first place
- Get rid of lower conviction stocks that you liked at one point, but have taken a major turn for the worse and may not survive this environment. This is especially true if you’re investing in turn-around companies that require equity capital.
- For the high conviction stocks that you have in your portfolio, create a range of valuation scenarios of how low you think the stocks can go. Decide which of those stocks that you want to add to if they fall.
- Finally, make a list of your strongest high conviction stocks that you believe are recession proof.
You need to remember one thing. You don’t have to have a batting average of 70%, 80%, or even 90% in the stock market to make money. Peter Lynch even pointed out that you can achieve tremendous investing success with just a 60% win rate, famously saying:
“In this business if you’re good, you’re right six times out of ten times. You don’t need a lot in your lifetime. You only need a few good stocks in your lifetime. I mean, how many times do you need a stock to go up ten-fold to make a lot of money? Not a lot.”
Basically, you just need a few good names to transform your portfolio even when it’s doing horrible. And we identified 5 recession proof stocks that can accomplish this goal.
We’ve addressed not-so-friendly market environments in the past few years, with the one surrounding COVID taking the cake. The reason we do this is to remind ourselves (and you) that they always pass. We talked about the concept of putting pragmatism over emotional investing in these articles:
When you get a chance, it’d be a great opportunity to review them as you digest this week’s content, because if you put some of the pieces of the puzzle together, the returns we reaped by not panicking paid off handsomely.
And that is what I want to address today.
In order to complete this task, it helps to get a sense of where some of the inflationary pressures are coming from. For example, the overall inflation rate currently sits at 8.6%, and is partly dominated by a rise in energy prices, energy services, and food costs.
Energy prices rose 34.6%, the most since September of 2005, due to:
- gasoline (48.7%)
- fuel oil (106.7%, the largest increase on record),
- electricity (12%, the largest 12-month increase since August 2006)
- natural gas (30.2%, the most since July 2008)
Food costs surged 10.1%, the first increase of 10% or more since March 1981. Big increases were seen in prices of meats, poultry, fish, and eggs (14.2%).
The reason for inflation in these areas is in large from supply chain bottlenecks occurring in tandem with increased global demand as we exit the pandemic. Not to mention, the Russia war with Ukraine has reduced the supply of oil and fertilizer exported from Russia, which accounts for a notably large portion of the global supply.
“The Russian invasion of Ukraine substantially elevates the risk of disruptions in the global fertilizer trade. Russia is the world’s largest exporter of fertilizers, accounting for 23% of ammonia exports, 14% of urea exports, 10% of processed phosphate exports, and 21% of potash exports, according to data from The Fertilizer Institute”.
It is really the perfect storm for inflation.
We also have to consider that the federal reserve’s aggressive campaign to tame inflation by raising rates will send the US economy into recession.
So obviously, searching for companies that will either solve or alleviate pressure points are great places to hunt for winning stocks in this type of environment. You can explore another interesting angle by seeking out companies that can help other companies save money. By receiving help, they can compete more efficiently by reducing costs to deliver their products and services.
And after taking a deep dive into GeoInvesting’s stock coverage universe spanning 15 years, we have found 5 stocks operating in diverse industries that fit the bill. But what’s even better about these five stocks is that they should do well whether we enter a recession or not. They’re great companies with sound business plans designed to create an immense amount of shareholder value for their investors
Ignore The Noise With These 5 Stocks
Below are 5 stocks that we think will yield a high return in the near future, which we think can all at least double. Furthermore, Three of these stocks are increasing revenue and are profitable, while the other 2 are at break-even and about to generate substantial profits – the perfect prescription for the kind of market environment we are heading into. Here is summary of the themes surrounding these stocks:
Company 1 – Company to Help with Food Crises
- Uniquely positioned to capture a large portion of the total addressable market for high tech solutions for farmers to increase the yield, quality and supply of agricultural crops.
- Strong library of intellectual property, giving it an edge to be a first mover for licensing and collaboration
- This multi-year turn-around inflected when it posted positive numbers in the first half of 2022 and just closed a contract worth the entirety of 2021’s total revenue
- We see the stock at least tripling
Company 2 – Through Its Technology platform, the Company Provides Services To Low Income Households through Fully Funded Guaranteed Government Subsidies
- 100% recurring revenue
- Services will become more in demand if a recession occurs, since more consumers will qualify for the subsidized services
- We believe its runway for growth is underappreciated by investors, as it continues to capture high margin revenue streams previously not available to them
- The CEO has a history of successfully building and scaling tech companies.
- We see the stock at least increasing 3x to 5x
Company 3 – Company Operates an On-line Marketplace That Facilitates The Buying and Selling Of Delinquent Consumer Loans, Along with Asset with Liquidation Services For Companies.
- Bankruptcies or the desire to avoid filing for bankruptcy in a recessionary environment could increase the amount of businesses that will need to liquidate assets.
- Consumers could find it more difficult to satisfy their debt and credit card balances during a recession. This is especially true for consumers who are already considered high risk. These types of scenarios would increase the need for the HGBL’s on-line platform and the number of lending institutions the company can market to.
- Insiders are aggressively buying the stock.
- We see the stock increasing 100%
Company 4 – Company Solving Remote Monitoring Services & Power Grid Problems
- High recurring revenue
- The oil and gas markets it serves are seeing a surge in production, increasing the needs for the company remote monitoring solutions. Likewise, the increased demands on electrical power generation are causing more power outages which bodes well for the company’s back-up power solutions.
- About to make an acquisition, where the details are buried in a recent conference call transcript. The call was not well attended, a scenario which typically offers an information arbitrage opportunity. The acquisition will increase the company’s growth rate.
- Dealers readily admit their preference of the company’s products over its larger competitors
- Insiders are aggressively buying stock
- Our expected return on stock is 100% or more and we believe that the company will eventually be sold to a larger competitor.
Company 5 – Company Is Focused on helping companies better understand their customers
- 100% recurring revenue
- Coming out of COVID, companies need more help now than ever navigating the new normal.
- If we enter into a recession, the need to understand customers will just get stronger.
- Coming off a strong revenue growth performance in 2021; increased 2022 sales growth guidance from 40% to 50%.
- Our published conversations with the CEO lay a solid foundation for our understanding of the company’s advantages over peers
- Low price to sales ratio of 0.3x leaves plenty of room for upside. We see the stock at least tripling
While the 5 stocks have been consistently covered on GeoInvesting, we wanted to make sure that it was clear why they could thrive in a potentially recessionary environment
However, gauging The timeliness of the stocks is still difficult given the elevated sense of fear that investors are exhibiting right now. For example, there were a few days over the last couple weeks where 90% of stocks in the indexes were down during some trading days. Sometimes you just can’t fight the trend.
That’s why we definitely recommend going to each of the stocks’ respective profiles, linked within the symbols above, to further familiarize yourselves with the reasons why we began our coverage on them and some of their unique risk/reward profiles.
Thank you for reading.