When the stock market goes down, not all stocks go down with it. Some manage to do reasonably well during a downturn, whether because they cater to cost-conscious consumers, such as money tree (DLTR -3.16%)or because they are in the recession-resistant healthcare industry, such as McKesson (MCK -0.51%). It could also be because they have built-in diversification that protects them from a downturn, e.g. B. as an industrial supplier Carlisle company (CSL -4.09%).
All three of these companies are easy to beat S&P500 Index, which is down about 25% so far this year.
Dollar Tree benefits bargain hunters
Dollar Tree operates 16,231 bargain stores in 48 states and Canada under the Dollar Tree, Family Dollar and Dollar Tree Canada names. As the name suggests, it sells a majority of its wares for $1, although it has increased prices over the past year. The company’s stores are designed for bargain hunters and the company has a history of thriving during economic downturns.
As inflation rises, even more wealthy shoppers are pouring into the stores. The company’s CEO, Mike Witynski, said during the second-quarter earnings call that the company’s fastest-growing demographic is from households earning more than $80,000 a year.
So far this year, the stock is down less than 1%, and while that’s obviously better than the S&P 500, the stock could rise if the economy slips into a recession. In the meantime, even if we don’t enter a recession, the stock is still a steal, trading at just 20 times earnings.
The only reason the stock hasn’t risen this year is because Dollar Tree downgraded its forecast for the rest of the year in its second-quarter report, citing inflationary pressures, even though its new forecast of annual earnings per share always came up still between $7.10 and $7.40 represents a gain from the $5.80 EPS reported last year.
However, the other financial metrics in the report were rosy. The company reported revenue of $6.77 billion, up 6.7% year over year, and earnings per share (EPS) were $1.60, up 30.1% year over year same period of the previous year.
McKesson has strong pricing power
McKesson’s shares are up more than 45% this year. The Company is a supplier of pharmaceuticals and medical devices to healthcare companies. It does not matter. It buys goods at wholesale prices and sells them at retail prices. As such, it is not dependent on a large research and development budget or whether a new drug is approved by the Food and Drug Administration.
McKesson is a massive, diverse company with a market cap of more than $50 billion and 75,000 employees. It operates through three segments: Medical Surgical, U.S. Pharmaceutical, and Prescription Technology. The medical facilities treating consumers use pretty much the same number of scalpels and drugs in a recession as they do in boom times. That’s one reason Warren Buffett got through Berkshire Hathawayhas increased positions at McKesson this year.
For the first quarter of fiscal 2023, McKesson reported revenue of $67.2 billion, up 7% year-over-year, with earnings per share of $5.83, up 5% year-over-year. The company said it expects annual EPS to be between $23.95 and $24.65, compared to $7.23 in 2022.
McKesson just increased its dividend by 15% to $0.54 per share, which gives it a yield of around 0.61% and a very low cash payout ratio of 6.1%, meaning it’s growing its dividend slightly can increase. During the first three months of fiscal 2023, the company completed $1 billion in share repurchases and approved an additional $4 billion in repurchases. Both moves help keep the stock’s price high.
^SPX data from YCharts
Carlisle operates in recession-resistant businesses
Carlisle Companies are so named because their business is actually four companies that manufacture and supply engineered materials used by original equipment manufacturers. It tends to fly under the radar because it sells its wares to businesses, not consumers, like Carlisle Construction Materials, Carlisle Waterproofing Technologies, Carlisle Interconnect Technologies, and Carlisle Fluid Technologies.
The stock is up 17.5% so far this year as the company’s businesses continue to grow. Still, like Dollar Tree, it only trades at 20 times earnings.
In the second quarter, it reported revenue of $1.8 billion, up 56.8% year over year, and earnings per share of $5.62, up 217.5%. Carlisle Waterproofing led the way with sales up 109.3% over the same period last year, while Carlisle Construction saw sales jump 54%. Laggards Carlisle Interconnect Technologies and Carlisle Fluid Technologies also posted gains, albeit a more modest 25.9% and 0.6%, respectively.
Carlisle is also a Dividend Aristocrat, having increased its dividend for 46 straight years, including a 39% increase this year to $0.75 per share, for a yield of around 1.03%.
Jim Halley has positions with Carlisle Companies. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends McKesson and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). Shares) . The Motley Fool has a disclosure policy.
