5 Shares That Are Beating The Recession

Published in Investing on 4 July 2012

It's time to stop worrying and start investing.

Anyone reading the newspapers could be forgiven for thinking that the UK'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 UK's companies are doing superbly well, with strong balance sheets, decent profit margins and healthy order books.

Beat the rush

Many UK 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 £500m in a major FTSE 100 (UKX) brand that's currently out of favour 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 deliverance

Dividend shares are increasingly popular these days -- and with good quality shares yielding more than bonds, so they should be.

Carillion (LSE: CLLN) is a FTSE 250 company that specialises in public sector outsourcing and infrastructure construction projects. Its shares currently offer a dividend yield of 6%, despite Carillion having 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 shared by my Foolish colleague Kevin Godbold.

Housing recovery

The UK's housing market will eventually recover -- and by most estimates it has already stabilised, as shown by the raft of decent results from major housebuilders this year.

Like all housebuilders, Taylor Wimpey (LSE: TW) was hit pretty hard by the housing market crash. Its share price collapsed from a peak of 509p in 2007 to a low of just 15p 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 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 (LSE: HTG) has had a solid run since 2009, delivering substantial earnings and dividend growth every year. The company has benefited from its exposure to the US 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 (LSE: TPT) 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 UK.

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 £13m pre-tax profit this year, up from £7.9m 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 recovery opportunities.

One of my picks was Hargreaves Services (LSE: HSP), a coal mining and trading company that suffered a 25% fall in its share price in May following problems in its main UK 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 £12m-£16m 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.

Final thoughts

Each of these companies has something different to offer investors, but all of them highlight the healthy state of many of the UK'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.

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Further investment opportunities:

> Roland does not own any of the shares mentioned in this article.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

ngata 04 Jul 2012 , 1:37pm

Each to his own, I suppose. I wouldn't touch any of those.

theRealGrinch 04 Jul 2012 , 5:33pm

have you been in a topps tiles shop lately? if you can ever find someone to serve, then they are unlikely to put much effort into helping the customer find the tiles they want.

QuantumDealer 04 Jul 2012 , 8:40pm

I think Rolls Royce is nicely beating the 'recession' too - check out the performance of the shares for confirmation.

sopavest 05 Jul 2012 , 2:47pm

@QuantumDealer

It certainly is, but I thought I'd mention some smaller companies in this article, all of whom updated the markets yesterday.

Cheers,

Roland (article author)

markoswin 07 Jul 2012 , 5:57pm

Carillion were down 17p yesterday, the biggest faller in the FTSE 250!!

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