A recession might just be around the corner! How can you protect your investments?
Global equity markets are very uncertain these days. High inflation is prompting most central banks to increase interest rates to try to bring inflation down.
This has had a negative impact on most markets, as investors worry that corporate earnings might be affected by the higher interest rate and weaker demand.
There are now talks of a global recession on the way, potentially in the next quarter or the first half of next year. Hence, many investors are already pricing this in and shifting their investments into low-risk assets.
This article will look at 5 stocks with strong balance sheet to buy during recession. Here goes!
#1 Bukit Sembawang Estates
Bukit Sembawang Estates (BSE) is an investment holding company mainly involved in property development and investment businesses.
It developed 4,600 landed properties in Sembawang, Seletar, and Luxus Hills, and 1,800 residential units in premier locations such as Districts 9 and 10.
During the pandemic in 2020, BSE actually recorded strong revenue growth of 57.1% from SGD369.7 million in 2019 to SGD581.0 million in 2020.
Meanwhile, profits more than doubled to SGD189.4 million in 2020 from SGD76.1 million in 2019.
BSE currently has a cash ratio of 8.9 times – one of the highest in the market – and means that it can cover its current obligations 8.9 times over should it need to.
It also has a very low total debt-to-equity (DE) ratio of 0.08, which puts BSE as one of the companies with the lowest leverages in the market.
Apart from having a strong balance sheet, BSE could be a worthy investment to look at for the following reasons:
- Reputable property developer with a solid track record in the market.
- Consistent dividend policy.
- Decent profit margins of 28.8% currently.
In terms of valuation, BSE has a price-to-book ratio of 0.74 times, much lower than the historical average (2018 to 2021) of 0.82 times. It currently has a healthy dividend yield of 3.8%.
#2 Haw Par Group
Haw Par Group (HPG) is a multinational company based in Singapore, who is engaged in the healthcare, leisure and property businesses.
It is most famous for its Tiger Balm ointment brand, where it is used worldwide by consumers for relieving pain.
HPG is still on the path to recovery from the pandemic, with revenue recovering to SGD141.2 million in 2021 from SGD111.0 million in 2020, still below 2019’s revenue of SGD244.0 million.
Its profit margins are considerably high at 78.0% in 2021.
In terms of its balance sheet, HPG has a very high cash ratio of 6.9 times currently. It has maintained a high cash ratio through the years with a historical average of 4.7 times from 2013 to 2021.
Meanwhile, HPG barely has any debt currently, taking on only about SGD13.8 million in short- and long-term debt. This results in a very low DE ratio of 0.004.
HPG could be a good investment to hold based on the following reasons:
- Worldwide appeal from the Tiger Balm brand.
- High profit margins.
- Stable demand for its products even in a recession due to their health benefits.
As of now, HPG is trading at a price-to-book ratio of 0.66 times, lower than the historical average (2018 – 2021) of 0.70 times and has a current dividend yield of 3.1%.
#3 Genting Singapore
Genting Singapore Limited (GSL) is part of the wider Genting Group, mainly involved in the businesses of gaming, hospitality, MICE, leisure, and entertainment. It owns Resorts World Sentosa that has a casino, waterpark, theme park, hotels, MICE facilities, restaurants and retail outlets.
GSL was quite badly affected by the pandemic, where international tourism came to a complete halt.
Its 2021 revenue of SGD1.1 billion has not recovered back to SGD2.5 billion in 2019, but it did not make any losses during the pandemic, making it quite a good recession proof stock to hold.
It currently has a high cash ratio of 4.8 times, where it has maintained a historical average of 5.4 times from 2013 to 2021.
As GSL is quite a mature company now, it has a low DE ratio of 0.02, much lower than its peak of 0.17 in 2013.
It could be a good steady stock to hold in a recession for the following factors:
- Prove track record to make profits even during a recession.
- One of the most reputable integrated gaming / casino resort operators in the world.
- Strong backing from the parent group, Genting Group.
GSL is trading at a price-to-book ratio of 1.3 times and is distributing its dividends at a 2.5% yield currently.
#4: SIA Engineering
SIA Engineering (SIA) is the aircraft engineering and maintenance arm of Singapore Airlines, operating at more than 25 airports in 7 countries around the world.
Similar to HPG, SIA is still on the path to a full recovery. Its 2022 revenue of SGD566 million is still half of its revenue of SGD1.1 billion in 2019.
However, it has managed to swing back to a profit of SGD67.8 million in 2022 compared to a loss of SGD35.6 million in 2021.
However, SIA has one of the highest cash ratio of 3.5 times in the Singapore market in 2022. This is its highest ratio compared to the historical average (2013 – 2021) of 2.1 times.
SIA could be worth a good look at for the following qualities:
- Strong ties to Singapore Airlines.
- On the path to recovery in line with the increase in flights amid reopening of international borders.
Furthermore, it operates a business model that does not rely on debt that much with a low DE ratio of 0.04. SIA currently trades at a price-to-book ratio of 1.6 times.
#5: Riverstone
Riverstone is engaged in the production of Cleanroom gloves, fingercots and packing bags.
These products are widely used in the semiconductor industry, and exported to the U.S., Asia and Europe regions mainly.
Riverstone benefited immensely from the pandemic, as its gloves were also used by normal consumers and the healthcare sectors.
Revenue tripled from SGD325.6 million in 2019 to SGD997.8 million in 2021. On the other hand, profits grew by a whopping 10 times from SGD42.9 million to SGD459.0 million over the same period.
From Riverstone’s balance sheet, it has a very high cash ratio of 5.9 times, the highest it has been compared to the historical average (2013 – 2021) of 1.8 times.
Similar to the rest of the companies above, Riverstone does not rely on debt to fuel its growth, with a miniscule DE ratio of 0.001.
Riverstone might be worth a good look at for the following reasons:
- Strong revenue and profit growth.
- Very light debt structure.
- Continued demand from semiconductor industry.
Riverstone currently trades at a price-to-book ratio of 1.3 times, lower than the historical average (2018 – 2021) of 2.4 times. It has a very high dividend yield of 26.4% as of now but it will perhaps moderate down a lot due to lower profits after the gloves demand surge.
Conclusion
With an impending global recession, investors can take this opportunity to accumulate stocks that have strong balance sheets to withstand the volatility and perhaps emerge stronger than before.
