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Financial Adviser: 5 Recession-Proof Stocks to Invest in During the Coronavirus Crisis

There are a few companies that belong to recession-proof industries and may likely survive and even thrive during these trying times.
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One month has passed since economic activities in the country have practically shut down due to the enhanced community quarantine being enforced by the national government.

The stock market has already lost as much as 47 percent this year when the PSE Index fell to a nine-year low of 4,039 from 7,742 at the start of the year.

Although the market has recovered somewhat on low volume turnover by 36 percent to 5,510 to date, there are no clear signs yet that the market has already bottomed out as uncertainty still lingers. No one knows when this pandemic will finally be over. It may take some time, possibly several months before this crisis comes to an end.

In the meantime, while the government-imposed community quarantine remains in effect, suspension of business activities means significant losses for many companies. Gloomy earnings expectations brought about by the crisis may cause the market to fall again and test its recent low.

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But amidst the risks of another downturn in the market, there are few companies, which belong to recession-proof industries, that may likely survive and even thrive during these trying times.

If you are looking for opportunities to invest and build your portfolio, here are the top five stocks that you can buy during this crisis:

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1| Globe Telecoms, Inc.

Globe Telecoms, Inc (PSE: GLO) is the largest telecommunications services provider in the Philippines with over 94.2 million mobile subscribers and 2.0 million home broadband customers.

GLO tends to be immune to economic downturns as demand for internet and wi-fi services remains robust, especially during this quarantine period where people are required to stay home.

About 71 percent of GLO’s revenues is comprised of data-related revenues with mobile data contributing 48 percent followed by home broadband, 14 percent and corporate data, nine percent.

GLO reported that its total service revenues increased by 12 percent to P149 billion in 2019 from P132.8 billion the previous year.

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This increase, coupled with improving operating costs, enabled its net income to grow by 20 percent to P22.3 billion.

With a stronger balance sheet this year at 1.68 gross debt-to-equity ratio, GLO has committed to expand its network further with a capital expenditure budget of P63 billion, which should enhance long-term value of the stock.

The stock of GLO has already risen by 18 percent since the lockdown period started but it still offers good value.

Given the company’s generous dividend policy, based on its recent cash dividend of P27 per share, thecurrent share price offers 5.0 percent dividend yield.

Buying this stock on weakness near the P2,000 level should provide great opportunity for long-term returns.

2| Manila Electric Company

The Manila Electric Company, better known as Meralco (PSE: MER) is the country’s largest electric power distributor, with a franchise area covering 6.4 million customer accounts in 36 cities and 75 municipalities.

MER, owing to the necessity of the electric services that it provides, has historically thrived in tough economic situations.

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Being unaffected by business cycles, MER offers a good defensive play compared to other stocks that are economically sensitive.

MER’s net income growth in 2019 was almost flat with 1.1 percent at P23.2 billion on the back of total revenues of P318 billion, which grew by 4.6 percent from the previous year.

The dull earnings performance of MER has sent the stock droppping by as much as 51 percent from its high of P388 per share last year to a low of P189.7 per share.

But since the lockdown period began last month, MER has been one of the best performing blue chips recovering by 10.9 percent to date.

At the current share price of the stock, based on its latest cash dividend, MER is trading at a dividend yield of 5.9 percent.

Buying this stock on profit taking near the P220 area should not only provide opportunity to lock in the stock at high dividend yield of 7.1 percent but also for huge long-term capital appreciation.

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3| Manila Water Company, Inc.

Manila Water Company (PSE: MWC) is the leading provider of water and used water services in the Philippines covering over six million people from 23 cities and municipalities in the Metro Manila’s East water concession area.

Similar to MER, MWC is also a utility company that historically tends to outperform the PSE Index during a market downturn.

Amid market uncertainties, utility stocks are perceived to be safe haven by investors because of its steady income streams.

MWC’s total revenues in 2019 increased by 11 percent from P19.8 billion the previous year to P21.9 billion. However, its net income fell by 16 percent to P5.5 billion due to higher operating costs and the water supply shortage last year.

The disappointing earnings performance of the company coupled by rumors of franchise cancellation by the government caused the stock to lose by as much as 74 percent in early December last year from P19.38 per share to a low of P5.01.

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The stock has since recovered to a high of P14.96 per share after an investor group led by business tycoon Enrique Razon representing Prime Metroline Holdings agreed to acquire additional shares in MWC for P10.7 billion plus proxy rights for total economic interest of 25 percent.

The acquisition required Prime Metroline to conduct a tender offer of P13 per share, which offers a 24-percent discount to the current share price of MWC.

MWC is also trading at only 4.36 times Price-to-Earnings (P/E) ratio against the market average of 13 times.

Moreover, based on MWC’s latest cash dividends of Php0.91, the stock has high dividend yield of 8.6 percent. Assuming the dividend next year will be cut by half, the dividend yield at the current price will still be attractive.

4| Puregold Price Club, Inc.

Puregold Price Club (PSE: PGOLD) is the largest supermarket company in the Philippines with a total of about 550,000 square meters of net selling area or 423 stores strategically located all over the country.

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Supermarket retailing has been regarded as a recession-proof business because demand for grocery items has historically endured past economic recessions.

During this period of community quarantine where most businesses are closed, grocery retail and supermarkets such as those by PGOLD are some of the essential sectors that can continue operating.

About 77 percent of PGOLD’s revenues comes from its Puregold supermarket chains while the balance of 23 percent from S&R membership shopping.

Based on the actual nine-month earnings results of PGOLD in September last year, it is estimated that net income for 2019 should have reached P6.7 billion, or 2.9 percent higher than P6.5 billion reported in 2018 on the back of 10-percent growth in revenues of P154 billion.

PGOLD has been one of the best performing blue chip stocks since the lockdown period with a total gain of 29.78 percent.

Being one of the few big cap stocks that will most likely deliver an earnings growth this year, PGOLD deserves to trade at a premium valuation.

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5| Century Pacific Food Tuna, Inc.

Century Pacific Food, Inc (PSE:CNPF) is one of the largest branded food companies in the Philippines with a broad product portfolio of trusted brands in the canned and processed fish, canned meat, and dairy business segments.

CNPF’s brands include Century Tuna, 555, Blue Bay, Fresca, Argentina, Swift, Wow, Lucky 7, Angel, Birch Tree, Kaffe de Oro, and Home Pride, which are leaders in their respective markets.

During times of crisis, CNPF’s is one of the direct beneficiaries from the increased demand for canned food products where sales may rise beyond its normal growth of 10 to 15 percent this year.

Last year, CNPF’s net income grew by 11 percent to P3.1 billion from P2.8 billion in 2018 as total revenues increased by seven percent to P40 billion, driven primarily by its branded products, which grew by 12 percent.

This year, with the expected record sales, an increase in earnings of at least 20 percent should support the stock of CNPF to trend higher.

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Higher earnings mean higher share price valuation. Given the stock’s earnings per share of P0.89, a 20-percent increase will mean P1.068 this year.

Given current Price-to-Earnings ratio of 16 times, the minimum target of the stock should be around P17 per share, which offers a 16.8 percent discount to its current share price.

But assuming premium valuation to compensate for the current stress, using PE-to-Growth ratio of 20, CNPF’s long-term share price target should be P21.36, which gives the current share price of the stock potential 51-percent return.

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Henry Ong
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