Three recession-proof stock picks
Yet another dim forecast recently came from Alan Greenspan, who pegged the odds of a U.S. recession at 50% or better. However, the former Fed boss says he sees little evidence that the U.S. is currently in a recession, which is characterized by two successive quarters of negative growth. He also thinks the right monetary and fiscal policy may not be enough to keep the economy out of a recession.
Housing market woes, the credit crunch and violent global stock markets have many investors searching for names with good yields and without economic sensitivity. Wellington West has put together a list of stocks that could provide just that – along with limited downside potential.
The firm’s three low-risk, “recession-resistant” top picks are school bus provider Student Transportation of America Ltd., ice products manufacturer and distributor Arctic Glacier Income Fund, and real estate consultancy Altus Group Income Fund. Each of these names have low payout ratios, which limits the chances that they may cut distributions, analyst Greg Colman told clients in a note. He also sees the potential for upside surprises as a result of some upcoming catalysts.
For Student Transportation, he said its revenue is driven by taking children to school, which typically has nothing to do with the economy.
“Arguably, an increasing unemployment rate could reduce (labour) costs and increase margins,” Mr. Colman noted.
Arctic Glacier was chosen because it has the potential of being counter-cyclical as consumers with less discretionary income may reduce their vacations and restaurant visits in favour of more camping and barbeque.
Finally, Wellington likes Altus given its international professional services group’s tax, accounting and property valuation businesses, which are expected to see more demand as regulations and prices change.
“With traditional safe havens of large-cap financials being marred with the credit crunch and seemingly daily announcements of one-time negative impact events, alternative defensive options have become and are likely to continue to become attractive options for investors,” Mr. Colman wrote.
