While the S&P 500 continues to rip higher, savvy investors know that the market's upward trajectory can't proceed indefinitely. Compound this with the fear surrounding the impact of the coronavirus on the market and the fact that many experts believe we're overdue for a recession, and it seems that investors would be well-served to consider espousing a circumspect approach and look for companies which can withstand significant market volatility.
Although the prospect of a bear market may contribute to some restless nights, stocks like Newmont Goldcorp (NEM 2.53%), Neogen (NEOG -5.03%), and Idacorp (IDA 1.33%) may be the types of portfolio additions which help concerned investors to catch up on their z's.
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Dig this
Recognized by many as a "safe haven investment," gold is a frequent consideration for investors seeking to protect their portfolios from the effects of a recession. While purchasing gold bullion is one option for investors interested in the yellow stuff, gold coins and bars fail to offer investors the luxury of a dividend -- unlike Newmont Goldcorp's stock. The largest gold miner by market capitalization, Newmont Goldcorp is committed to rewarding shareholders by way of the dividend. The company recently announced a $0.14 per share payable on Mar. 14, and management reaffirmed its plan on raising the quarterly distribution 79% to $0.25 per share in April 2020.
The allure of Newmont Goldcorp transcends the stock's dividend though. According to a recent report of the company's gold mineral reserves, investors can rest assured that the company will have plenty of places for their shovels in the years to come. Proclaiming itself as the industry leader in gold mineral reserves, Newmont Goldcorp ended 2019 with 100.2 million ounces in gold reserves -- a 53% increase over the 65.4 million ounces which it had at the end of 2018. Consequently, management stated in the related press release that the company will be able to sustain annual gold production of 6 million ounces for "decades to come."
Be on the safe side
Undoubtedly, a recession will lead individuals and businesses to tighten the purse strings in a variety of ways; however, food and animal safety is surely one area in which attention will not wane. As a result, Neogen, a developer and manufacturer of products related to food and animal safety, is well-positioned to weather a market downturn. In 2019, for example, Neogen reported that of its $414 million in revenue, food safety and animal safety sales accounted for 52% and 48%, respectively.
Over the past 10 years, Neogen has demonstrated the ability to effectively grow both the top and bottom lines, due in part to management's prowess at identifying value-adding acquisitions. Neogen, for example, has executed 40 acquisitions since 2000.
NEOG Revenue (Annual) data by YCharts.
Similarly, the company has also demonstrated the ability to generate strong cash flow. Over the past three years, for example, Neogen has generated annual averages of $64.3 million and $47.7 million in operational cash flow and free cash flow, respectively. In addition to its strong cash flow, the fact that the company recently ended its second quarter of 2020 with a solid, debt-free balance sheet -- including $314 million in cash on hand -- suggests that it has the financial fortitude to withstand the challenges which a recession will present.
Going electric in the Gem State
Whereas innovative tech companies are usually the ones found in the headlines, utility stocks will typically draw the attention of conservative investors -- like those close to or in retirement -- who are looking to preserve their wealth. During a recession, however, the allure of conservative stocks may be appealing to a wider variety of investors, making Idacorp, a worthy consideration.
A holding company which has exposure to real estate investments and hydroelectric generation projects, Idacorp recognizes the lion's share of its revenue from Idaho Power Company, the primary subsidiary, which accounted for more than 99% of Idacorp's revenue in 2018. The fact that Idaho Power Company represents the majority of Idacorp's revenue should appeal to conservative investors because the subsidiary is a regulated utility -- as such management has good insight into what it can expect in terms of revenue, which, in turn, can help the company in the planning of its capital expenditures. Illustrating management's success at maintaining the company's financial health, Idacorp current has an investment-grade balance sheet, featuring debt ratings of Baa1 from Moody's and BBB from S&P Global Ratings. Moreover, the company doesn't appear to rely too heavily on leverage as it currently has a net debt-to-EBITDA ratio of 3.1.
The recession-ready roundup
For some investors, shoring up their portfolios by gaining exposure to gold is a go-to strategy. And for those interested in the yellow metal, Newmont Goldcorp, the big dog in the gold mining sector, is worth taking a look. Those who would rather eschew gold, however, may be more interested in Neogen and Idacorp. During a recession, food and animal safety is one area unlikely to be neglected for to do so could lead to considerably higher financial consequences in the long term, making Neogen a worthwhile option. And while Idahoans, seeking to cut down on their electric bills, may be more inclined to turn off the lights when they leave a room during a recession, the company will likely be able to survive the downturn without suffering financial ruin.
