The small cap stocks we’ve discovered tend to hold up well during an economic recession
SmallCapPower | May 21, 2019: What goes up must go down. On average since the 1920s, recessions happen every seven years and it has been over 10 years since the Great Recession started. It is likely that another recession will happen at some point in the future. As a result of low interest rate policies from central banks throughout the world, debt levels are now higher than before the Great Recession. For example, Canadians on average have about $1.70 of debt for every $1 in disposable cash, a statistic that adds to recession worries. The stock market generally suffers during a recession, but some stocks do much better than the rest, due either to the inelasticity of their products, or their overall business strategy. Today we have identified four small cap stocks with market caps under $5 Billion that are built to outperform during a recessionary period.
*Share prices as at close Thursday, May 16, 2019, data obtained from S&P Capital IQ
Flowers Foods Inc (NYSE:FLO) – $22.66
Packaged Foods and Meats
Flowers Foods produces and markets bakery products in the United States. Founded in 1919, FLO is one of the largest producers of packaged bakery foods in the country. The Company sells a variety of breads, buns, rolls, tortillas, and snack cakes under popular brands such as Nature’s Own, Tastykake, Wonder Bread, Whitewheat, and Dave’s Killer Bread. Flowers Foods operates 39 bakeries and sells its products primarily through a network of independent distributors to retail and foodservice customers. Flowers Foods stock also has an annual dividend yield of 3.1%. The U.S. fresh bakery market exceeds $30 Billion in value and slowly grows each year, resulting in a stable and competitive environment. When times are tough, people still must eat, and baked goods are a cost friendly and important part of the American diet. During the 2007-2009 recession, the S&P 500 lost 55%, while Flower Foods shares only lost 1%.
- Market Cap: $4.8 Billion
- YTD Return: 23.6%
- 90 Day Average Trading Volume: 960,000
Spirit Airlines Inc (NASDAQ:SAVE) – $48.54
Airlines
Spirit Airlines provides low-fare airline services. The Company operates approximately 600 daily flights to 72 destinations in the United States, Caribbean, and Latin America. Spirit offers tickets through its call centers and airport ticket counters, as well as online through spirit.com. Spirit’s strategy of unbundling its services and offering customers the option for purchase, ranging from bags and seat assignment to refreshments, has been much appreciated by its customers. Although airlines are generally not considered recession-proof companies, Spirit Airlines could be an outlier in that regard. Cash-strapped customers who might have flown a different airline when they felt wealthier, will turn to Spirit more often. SAVE also continues its expansion in South America and has yet to tap the Canadian market. The Company is also looking at adding regional jet types to their fleet, which would allow them to expand to smaller domestic markets presently overlooked by discount carriers.
- Market Cap: $3.3 Billion
- YTD Return: -15.6%
- 90 Day Average Trading Volume: 1,170,000
North West Company Inc (TSX:NWC) – $29.29
Food Retail
The North West Company engages in the retailing of food and everyday products & services to rural communities and urban neighbourhood markets in Canada, Alaska, South Pacific, and the Caribbean. The Company delivers its products and services through retail, wholesale, and complimentary businesses. NWC currently has a dividend yield of 4.5%. As stated previously, people need to eat regardless of the current economic conditions. Because of this, food providers tend to hold up well in an economic slowdown. Northwest tends to specialize in servicing under-reached, potentially lower-income areas in Canada, Alaska, the Caribbean, and South Pacific islands, which the larger grocery chains may not serve.
- Market Cap: $1.4 Billion
- YTD Return: -6.6%
- 90 Day Average Trading Volume: 130,000
Teladoc Health Inc (NYSE:TDOC) – $61.48
Health Care Technology
Teladoc Health provides telehealth services. It offers a portfolio of services and solutions covering 450 medical subspecialties, such as flu and upper respiratory infections, cancer, and congestive heart failure. The Company provides its services through mobile devices, the Internet, video, and phone. It serves employers, health plans, health systems, and other entities in approximately 100 countries around the world. Healthcare stocks generally tend to perform well as recession-proof stocks. Even in a booming economy, the rising cost of healthcare has served as a source of worry for many Americans. However, Teladoc’s strategy cuts the cost of doctor visits. For only $40, a patient can receive a virtual visit from a doctor at any time on their computer or smartphone. This allows for treatment solutions at a lower cost without the wait. Additionally, unemployed workers will often drop health insurance during downturns. Therefore, TDOC could provide accessible life-saving treatment to those who might not otherwise be able to afford a doctor.
- Market Cap: $4.4 Billion
- YTD Return: 22.9%
- 90 Day Average Trading Volume: 1,720,000
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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