On June 8th, the National Bureau of Economic Research officially declared that the economy is in recession. It ended a long period of expansion, which lasted over a decade. Since we’re in a recession, it’s an excellent time to look at stocks that can flourish in this economic environment.
When I look for stocks that will do well in a recession, I follow a simple strategy. I look for companies that are growing their revenues, have a low long-term debt to equity, and hold enough cash to sustain a downturn. I then narrow my choices by filtering out any stocks that don’t have a Buy or Strong Buy rating in our POWR Ratings. I have chosen three companies that should prosper during a recession and beyond.
CRM develops enterprise cloud computing solutions. They provide customer relationship management software for companies worldwide. CRM has long dominated the customer relationship market and is now considered a digital transformation leader. CRM had a market share of 18.4% in the customer relationship market last year. The company has also transitioned into cloud computing. CRM has built a suite of software that covers data management, marketing, sales, and service. COVID will only boost its software as a service business (Saas).
CRM has also entered the collaboration market with its new app, Salesforce Anywhere. It will be competing against Microsoft (MSFT) and Slack (WORK). Management at CRM feels that Slack and other software like it pull people away from their core tasks. Salesforce Anywhere will bring collaboration into the entire Salesforce system, so data and accounts can be updated in real-time.
The company has $9.8 Billion of cash on hand as of April. Its sales have been growing steadily over the past few years. The company expects $20 Billion in annual sales by 2021, which would imply 17% growth for the year. CRM has a low long-term debt/equity ratio of 0.08. CRM has Strong Buy POWR Rating and is ranked #1 out of 47 stocks in the Software-Business Industry. It makes it a great company to own in a recession.
Vertex Pharmaceuticals Inc (VRTX)
VRTX is primarily in the business of developing and commercializing therapies to treat cystic fibrosis. Cystic fibrosis is a hereditary disease that affects the lungs and digestive system and can be life-threatening. A defect in the CFTR gene causes cystic fibrosis. Currently, there are only four FDA approved drugs that can treat that defect. They are all distributed by VRTX. The company’s latest drug, Trifafta, has had a great start with $895 million in revenue in its first quarter on the market.
The company is also looking to expand into other drugs. VRTZ is partnering with CRISPR Therapeutics (CRSP) to develop a gene-editing therapy that can potentially cure blood diseases such as sickle cell disease.
VRTX’s estimated EPS year over year growth rate is 52.3%, and its 5-year EPS growth estimate is 24%. The company’s revenues have a compound annual growth rate (CAGR) over the last five years of 41.7%. VRTX has also steadily increased its cash flow per share. VRTX has a low long-term debt/equity ratio of 0.08. VRTX has Strong Buy POWR Rating and is ranked #2 out of 336 stocks in the Biotech Industry. VRTX is a great addition to a portfolio during a recession.
Corcept Therapeutics Incorporated (CORT)
CORT, another biotech stock, develops and commercializes drugs to treat severe metabolic, oncologic, and psychiatric disorders. The company treats disorders by regulating the effects of cortisol, the stress hormone. CORT has one drug in the market, Korlym, which primarily reduces excess glucose in the bloodstream of patients with Cushing’s disease. These patients have excess cortisol. The company owns ten patents that are related to the drug.
CORT has another drug in phase 2 trials called Relacorilant. This nonsteroidal compound is used to treat various Cushing’s disease-related ailments. The company believes that Relacorilant will have fewer side effects than Korlym. CORT is also working on compounds to treat amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease), made famous by the Ice Bucket Challenge a few years ago.
The company beat earnings estimates in its first-quarter report. Its revenue for the quarter was $93.2 million, which was an increase of 44% from the same quarter last year. The company has no debt and $307 million in cash. CORT has Buy POWR Rating and is ranked #54 out of 336 stocks in the Biotech Industry. CORT should perform well in any economic environment.
These three stocks could be excellent choices for conservative lower-risk stocks in a recession.
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CRM shares rose $0.70 (+0.38%) in premarket trading Monday. Year-to-date, CRM has gained 12.62%, versus a -5.82% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More…
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