5 Shares That Are Beating the Recession
Anyone reading the newspapers could be forgiven for thinking that the U,K,'s companies are debt-ridden, crumbling disaster zones, stumbling from one loss to the next. Share prices are currently reflecting this sentiment -- yet the reality is completely different!
While the government's finances might be in a sorry state, many of the U.K.'s companies are doing superbly well, with strong balance sheets, decent profit margins, and healthy order books.
Beat the rush
Many U.K. companies are now on sale at prices more attractive than at any time since the 2008-9 crash -- and in many cases, they are now in much more robust health. Now is a great time to be buying shares, as investing legend Warren Buffett explained in one of his most memorable quotes: "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."
Buffett recently put his money where his mouth is and invested more than 500 million in a major FTSE 100 brand that's currently out of favor with the markets. You can find out the identity of the company and the price he paid in this special free report -- and I'd recommend you do, as the shares are currently even cheaper than when Buffett bought them.
Five recession beaters
The great thing about investing in the current market is that you don't have to look far to find companies that are beating the doom and gloom and delivering solid results.
In this article, I'd like to share five such examples with you -- each of which has a particular attraction.
Dividend shares are increasingly popular these days -- and with good-quality shares yielding more than bonds, so they should be.
Carillion (ISE: CLLN.L) is a FTSE 250 company that specializes in public-sector outsourcing and infrastructure construction projects. Its shares currently offer a dividend yield of 6%, even as the company has remained profitable and increased its dividend every year throughout the recession.
In its latest trading statement, Carillion confirmed that it is trading in line with expectations and expects operating margins to improve this year. For me, Carillion's reliable income potential makes it a buy, a conclusion my Foolish colleague Kevin Godbold shares.
The U..K's housing market will eventually recover -- and by most estimates it has already stabilized, as seen in the raft of decent results from major homebuilders this year.
Like all homebuilders, Taylor Wimpey (ISE: TW.L) was hit pretty hard by the housing market's crash. Its share price collapsed from a peak of 509 pence in 2007 to a low of just 15 pence in 2008.
It took until last year for Taylor Wimpey to return to profit, and I reckon that the company's recovery is only just getting started. It currently trades around 16% below its net tangible asset value, and its shares have a price-to-earnings growth ratio of just 0.2, reflecting the potential for strong earnings growth over the coming year.
In a trading update this morning, Taylor Wimpey confirmed that it is trading in line with expectations for the year, meaning a big increase in full-year earnings is likely.
Hunting for oil
Oil services firm Hunting (ISE: HTG.L) has had a solid run since 2009, delivering substantial earnings and dividend growth every year. The company has benefited from its exposure to the U.S. shale boom but also has activities in more conventional markets.
Hunting's share price is linked to oil prices and can be quite volatile. However, it has recently fallen nearly 25% from its May highs and looks more attractive than it did earlier this year. Although the share price could fall further if oil continues to get cheaper, the company's earnings and dividend (which has doubled since 2007) are more stable and should help provide longer-term support.
On the tiles
Tile specialist Topps Tiles (ISE: TPT.L) may not have as high a profile as B&Q or Homebase, but it does have a firm hold on its niche and an expanding network of 322 stores across the U.K.
This morning, Topps' management reported that like-for-like sales rose by 2.1% over the last quarter, leaving the company trading in line with expectations for a 13 million pound pre-tax profit this year, up from 7.9 million pounds last year.
Topps Tiles is planning to open three more stores during this quarter and currently trades on a modest price-to-earnings (P/E) ratio of just 7, with its 2.8% dividend yield covered five times by earnings. The company is expected to increase its total dividend by around 20% this year and looks well positioned to provide an attractive mixture of growth and income over the next few years.
A bouncing knife
In my recent article How to Buy a Falling Knife, I took a look at three "falling knife" type of recovery opportunities.
One of my picks was Hargreaves Services (ISE: HSP.L) , a coal mining and trading company that suffered a 25% fall in its share price in May following problems in its main U.K. mine.
Hargreaves has now confirmed that no further problems are expected and that remedial work is proceeding to plan, which will result in a forecast reduction of 12 million to 16 million pounds in pre-tax profits in the 2012-13 financial year.
This year's results are unaffected and should meet expectations. This places Hargreaves' shares on a P/E of about 7.5, making it attractively cheap if you believe it will recover from its recent set back -- which I do.
Each of these companies has something different to offer investors, but all of them highlight the healthy state of many of the U.K.'s listed companies.
If you'd like more great investment ideas for 2012, then I would suggest you download "Top Sectors of 2012," a free report from the Fool's expert analysts highlighting their growth tips for the remainder of this year.
Warren Buffett buys British! The legendary investor has recently topped up on his favorite U.K. blue chip. Discover what he bought -- and the price he paid -- within our latest free report!
Further investment opportunities:
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.