This past Friday, February 7, the Bureau of Labor Statistics released the January jobs numbers – and the results were gangbusters. With 225,000 new jobs reported, it was the greatest increase in almost five years. Other data confirmed the numbers: there was a significant increase in workforce reentrants, the labor force participation rate increased to 63.4%, its highest level in almost seven years, and wages increased at an annualized rate of 3.1%, well ahead of inflation.
While the jobs report was solid, there were also a few warning signals. Manufacturing jobs declined, and saw a drop in overtime hours reported. The combination indicates a slowdown in demand, as does a drop in durable-goods production. And while the US and China are making progress in dealing with their tariff disputes, China has been rocked by the Coronavirus outbreak, which has impacted travel and trade.
So, times are good, and portfolios are appreciating. Investors should be happy, and they are. But now may also be the last gleaming of a fine day. According to research from the MIT Sloan School of Management, a deep dive into the statistics of the economic expansion shows a 70% chance of a recession in the next six months. This runs counter to J.P. Morgan’s recent note on the markets, in which the banking giant says, “Our call remains that one should not expect a US recession ahead of a Presidential election.”
When the warning flashers are signaling, but before a crash comes – that is the right time to start recession-proofing a portfolio. We’ve used the TipRanks Stock Comparison tool to look at three blue-chip stocks with well-earned reputations for outperforming bear markets. Here are the results.
Brink’s Company (BCO)
We’ll start with Brink’s, a private security company with a high profile. Brinks has worldwide operations, with a presence in over 100 countries, providing armed and armored guard and courier services to governments, banks, jewelers, and retailers. The company also offers ATM services including machine installation, replenishment, and maintenance. Brink’s bills itself as a full-service commercial security provider.
The necessity of BCO’s business niche is clear from the stock’s 10% gain over the past 12 months. However, a disappointing Q4 report pushed the stock down last week. The company missed the forecasts on both revenues and EPS. The top line, at $936 million, missed by 2.6%, while the $1.18 EPS was 4.8% below estimates. Both numbers, however, were up significantly year-over-year.
In another boon for investors, BCO also offers a modest dividend. While significantly lower than the 2% average yield, the 15-cent quarterly payment is reliable. The company has a 20-year history of steady payouts, and has held the dividend at its current level for the last three years. The payout ratio of 13% indicates that this dividend is easily sustainable.
The company retains a number of other strengths to attract investors. Management is widely considered strong, and its margins are growing. 5-star analyst from SunTrust Robinson, Tobey Sommer, cited these points in his recent report on the stock: “[We are] positive on the company's superlative management and its efforts expand margins… Brink's has expanded its EBITDA margins from 10% to 15% since the new management took over 3.5 years ago… [we] believe that the company is driving the consolidation of the core cash-in-transit business.”
Sommer backs up his Buy rating with an aggressive $115 price target, up from $105, suggesting an upside potential of 39% to the stock. (To watch Sommer’s track record, click here)
With 3 recent Buy ratings to its credit, BCO shares hold a unanimous Strong Buy consensus rating. Shares are priced at $82.51, and the average target, $113, implies room for a 37% upside potential in the coming year. (See Brink’s stock analysis on TipRanks)
Dollar General Corporation (DG)
From commercial security, we move to discount retail. Everyone likes a deal at the store, in good times or bad, but in recessions, discount chains like Dollar General are perfectly positioned. They carry everything you need around the home, from cleaning supplies to over-the-counter pharmaceuticals, to basic groceries, homewares, and kids’ clothing. And should the economy turn south, Dollar General carries these products at discount prices.
This model brought the chain $25.6 billion in revenues for 2018, and the company beat earnings forecasts throughout 2019. In Q3, reported in early December, DG showed revenues of $6.99 billion and EPS of $1.42. These strong results represented year-over-year gains of 8.8% and 9.5%, respectively. Looking ahead, the company is expected to report full year earnings of $6.60 per share when it releases results.
Like BCO above, Dollar General offers investors a modest dividend. The yield is low, only 0.8%, but the company has been making the payments reliably since 2015. The current payment is 32 cents per quarter, or $1.28 annually, and represents a steady income stream for shareholders – a strong incentive for a stock used to “recession-proof” a portfolio.
Weighing in on DG in a recent report, Bradley Thomas, 4-star analyst with KeyBanc, pointed out that the company’s retail metrics are solid: “Same-store sales were higher by 4.6% which was 1.6 percentage points better than expected. Encouragingly, comps also accelerated on a one-year and three-year basis…”
In line with his positive view of the company’s current position, Thomas gives DG a Buy rating. His price target, $180, indicates confidence, too, and a 16% upside potential. (To watch Thomas’ track record, click here)
Dollar General shares sell for $154.97, and the average price target of $176 suggests room for 14% upside growth. The stock has a Strong Buy rating from the analyst consensus, based on 5 Buys and just a single Hold set in the recent weeks. (See Dollar General stock analysis on TipRanks)
Johnson & Johnson (JNJ)
With our final stock, we get to a long-time staple of the Dow Jones, Johnson & Johnson. JNJ is well known as both a pharmaceutical company and an easily recognized brand name in home health care. The company owns a number of high-value brands including Band-Aids, Neutrogena, and Tylenol. Parents are sure to know JNJ’s baby shampoo, and its “no more tears” advertising. Johnson & Johnson has a retail presence in over 170 countries and sees over $80 billion in annual revenues.
In Q4 2019, reported last month, EPS beat the estimates while revenue came up just a bit short. Earnings were $1.88 per share, 1% better than expected, while the $20.75 billion in revenues was 0.2% below. Year-over-year, the results were the opposite – EPS was down 4.5%, while quarterly revenue was up almost 2%. Shares are up since the Q4 release, on top of the 15% gains in the past 12 months.
While the company’s overall gain has underperformed the broader markets, JNJ makes up for that with an above-average dividend payment. The average dividend yield among S&P-listed companies is just about 2%; JNJ’s dividend yield lands at 2.5%. The annualized payment is $3.80, or 95 cents per share each quarter, and the company has maintained the payment, reliably, for 18 years. Not to mention management has increased the dividend steadily since 2011.
Johnson & Johnson saw a lot of bad news in 2019, mainly stemming from lawsuits. The largest of the court actions, involving a $572 million payout to the plaintiffs, was related to claims against the company’s baby powder products. A smaller, $8 million suit, revolved around risks stemming from the antipsychotic drug Risperdal. While these court actions are out of the way now, JNJ is still caught up in lawsuits related to the opioid addiction epidemic in the US. Legal concerns have put pressure on the stock, but with Risperdal settlements last year, JNJ shares have seen gains.
Cantor Fitzgerald analyst Louise Chen sees JNJ as a Buy proposition. She wrote, in a note released after the Q4 report, “[We] believe that upward earnings revisions to JNJ's Pharma business and multiple expansion, driven by diminishing headlines risks from talc and opioids, should move JNJ shares higher.”
As a result, Chen gave JNJ a $168 price target, suggesting a possible upside of 11%. (To watch Chen’s track record, click here)
JNJ gets a unanimous Strong Buy rating from the analyst consensus – no fewer than 7 analysts are bullish on the stock. Shares have an average price target of $168.43, which indicates a premium of 11% from the current share price of $151.89. (See Johnson & Johnson stock analysis on TipRanks)