5 Stocks to Hold During A Recession 2022 | Investing in a down market

5 Stocks to Hold During A Recession 2022. Learn how to invest in a down market like a recession or depression. Strong and diversified companies who’s products/services are necessary for daily living – with growing Revenue, EBITDA, Cashflow and low debt. These stocks are examples of how to invest for the long term.

Hello welcome to rational investing my name is cameron stewart cfa thank you very much for watching the channel all the comments and subscribers i greatly appreciate this week we’re gonna do something new we’re gonna do five stocks to hold during a recession i’m gonna go through five stocks that i think have the ability to defend their value during a recession

Primarily because their ability to generate customers is core of the underlying economy you need these services you need these products whether good times are bad you’re going to be buying their services and let’s figure out how much cash flow how much hard cash money do they make buying and selling their services for you so here we go five stocks owned during

Recession number one cvs health ticker cvs it’s a multi-location retail business that services for pharmacy pharmaceutical products pharmacy products and also convenience store products they’ve been growing their purse stores their number of stores and the revenue per store has been growing over the last decade if we look at the enterprise value for the business

The entire value of the business the blue line here it has grown from roughly 60 billion dollars to 180 billion dollars over the last decade period of time the green line is the market cap that’s the price at which it’s traded and the and the purple is the level of debt and level of debt has grown from 10 billion to 63 billion but the enterprise value itself has

Grown dramatically let’s see if earnings stack up with this so here is revenue and ebitda enterprise level earnings for cvs over the same decade you can see it’s grown 126 billion dollars of revenue up to 290 billion dollars of revenue annually as they both grow their store count and their revenue per store grows earnings have also grown from nine or ten billion

Dollars to 18 billion dollars that’s a doubling of earnings more than doubling of earnings over that decade a nice steady consistent growth path i like to see that free cash flow free cash flow is following earnings actually rather strongly from 5.7 at the low to 18.2 billion dollars of jack in the bank account at the end of the year this is not income this is hard

Cash money and that’s what we want to see 18 billion dollars capex is only two so they can easily afford to continue to build new stores with how much cash they’re generating leverage leveraging debt use is very very critical and you want to make sure you’re buying companies with as little debt as possible ideally our maximum would be three times debt to ebitda or

Less and cvs does check that box it had borrowed a lot of money the blue line is the amount of debt that they have on the balance sheet and that debt has been coming down over the last multiple years as they use their free cash flow to buy down debt and this purple line is our ratio it’s approaching three to one becomes economic for us to buy it that’s a good thing

We want to see now on a value basis how are they stacked up the blue line here is the ebitda it’s giving me enterprise value to ebitda it’s a relative value metric and they’re currently trading for nine times enterprise value ebitda or nine years of payback if you were to buy the enterprise and the earnings annually it would take nine years to get the money back

That’s about average for what they’ve been uh trading at which is okay the interesting thing here is the free cash flow yield is 12 remember i told you last slide they’ve been buying down well a free cash flow has been skyrocketing high and b debt has been coming down that means that as they pay down this debt they no longer have to buy it and this fat cash flow

Then can come to us as equity owners so you’re seeing this free cash flow yield climb it’s currently healing 12 percent not bad sitting in a company during a rest session that’s kicking off twelve percent of cash generating cash you’re gonna sit there and hold it for a long long time number two riley auto parts ticker o r l y i like both o’reilly auto parts and

Autozone again multi-location retail they own stores across the united states and those stores both revenue and earning are growing what do they do they supply auto parts why because inflation is causing raw materials to be very expensive which means new cars and used car pricing are going up and when that happens people can’t afford to buy a new car they fix up

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The old car auto parts o’reilly auto parts enterprise value has grown from roughly 13 billion dollars to 53 billion dollars over the last decade that’s a monster growth rate over that time and you’ll see the green line which is the market cap has stayed consistent with the blue that means leverage has been very very small we’d like to see that let’s check revenue

And ebitda revenue has been growing 6.6 billion dollars to 13 billion a doubling over that period of time remember growing the store count store counts grow plus each store grows revenue a little bit by raising prices and profit grows by being a little bit more efficient at every store profit ebit ebitda 1.2 billion dollars to 3.2 billion that’s three times earnings

Growth in a decade that’s fantastic free cash flow has cons has grown even bigger or commensurate with ebitda free cash flows roughly a billion dollars a decade ago it’s 3.2 billion that means the earnings they’re generating from their stores is translating into cash flow hard cash money that’s what you’re buying when you buy stock cap x 442 million dollars is chump

Change to the 3.2 billion basically what’s that 12 14 of total cash free cash is reinvested in capex they can very very very easily afford to continue to build new stores relative value enterprise value to ebitda and free cash flow yield over the decade currently trading at 15.6 times which is slightly higher than it has been historically right a slight growth

Rate in the blue line of enterprise value but that’s still a relatively decent price to pay given where we are on the market and giving this cash flow yield a cash flow yield of six percent is a very decent cash flow it’s not going to retire you but it’s also not single digits and this company has continued to grow and i think given where we are in this landscape

It’s going to continue to knock out stores and stores will continue to eke out cash flow and that’s what you’re buying very interesting stock leverage let’s check the leverage leverage has been growing right they’re building stores they are borrowing money but that leverage is still very affordable 5.3 times leverage excuse me 5. 5.3 billion dollars of leveraging

In the blue line the purple is our ratio the purple line 1.5 times means that they have basically one and a half years of debt on the book so if they had to they could operate for a year and a half and pay off all day that’s a great ratio that’s half of our max that we look for at three shares outstanding what are they doing with all their free cash flow yes they

Pay a dividend but they also buy back a tremendous amount of shares they had roughly 120 million shares outstanding a decade ago and they have less than 68 million currently that’s a 70 50 70 50 million shares almost having almost 50 percent reduction in shares that means the stock price or your ownership value had you bought the stock a decade ago would double

In value simply because they’ve removed shares that say this is them reaching to the market buying shares tearing them up and throwing them away and it means the remaining shareholders own a bigger piece of the company think of a pizza pie and you’re cutting it into smaller slices what happens if you merged slices together and you went from eight slices to four

Slices that means each owner now owns a bigger percentage of the business this is fantastic hey sorry interrupt if you like the content please subscribe i greatly appreciate it also if you want more stock tips check my website up cashflowinvestingpro.com where i produce one-pagers like this one summarizing 10 years of financial information for america express i

Give you a forecast of what i think it’s going to do and currently i think it’s yield 23 irr for the next decade an amazing stock pick there’s lots more check out the link below for free one pager at cashflowinvestingpro.com number three dollar tree ticker dltr now dollar tree is another multi-location retailer servicing the lower end of the retail customer these

Are people who are frugal budget conscious dollar pressed whatever you want to call it but they are people who need basics for utensils for some basic food basic candy and toys at a low reduced price again multi-location retail they build stores those stores operate they’re able to raise prices slowly and eke out greater earnings over time with scale and that

Stacks and compounds over time and it’s very defensible in a recession so what is dollar tree done well dollar tree has grown from 12 billion dollars to 38 billion dollars over this time that is almost a tripling in enterprise value you can see the green line has grown commensurate with that because debt has stayed manageable very very good to see enter revenue

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And ebitda revenue 3.7 billion to 26 billion dollars over that period of time that is a 4x growth rate phenomenal on revenue earnings 1 billion to 2.5 billion earnings are growing a little slower but they are definitely growing free cash flow is also growing nicely from 1 billion dollars to a peak of 2.7 and down to 1.4 as they had to reinvest in their inventory

Following the covid pandemic i expect this to revert back higher cash flow is much more unpredictable or more volatile than earnings that’s one reason you look at that hence the smoothing of uh line items in the p like depreciation and so forth so you’ll see more volatility in cash flow but i think that’s going to revert higher and their their cap x is relatively

Low at a billion dollars for building new stores they can easily afford that every single year leverage leverage is doing okay they’ve got nine billion dollars of total debt outstanding it’s only two times the purple lines only two times earnings that is below our three times it’s very manageable and with the growth rate that they’re experiencing they should

Be able to easily pay that and continue to grow shares outstanding have been relatively flat recently they’ve come down as they’ve used some of their free cash flow to buy back shares lastly we want to take a look at the enterprise value the relative value so enterprise value to ebitda that is again the multiple of earnings you’re paying on the business is 13.9

Which is relatively even for where they have been in the past a little high but relatively even free cash flow yield is very low right now because i mentioned earlier the reinvestment in inventory following post covid i think that reverts back higher so you’re in this six to five five to six percent yield rate when it reverts back and i think that’s a strong yield to

Hold for company during a recession number four united health group ticker unh united health group is a health care provider for the united states covering insurance and patients helping patients fine and pay for medical services 100 billion dollars to 460 billion dollars of enterprise value over the last decade market cap has followed that that’s a 400 increase

In your value over a decade debt has remained very very low so the green line is right on top of the blue line because the enterprise value equals the market cap let’s look at revenue revenue is doing the same thing so revenue 10 billion excuse me 100 billion dollars to 286 billion that’s a three times growth rate on the revenue uh ebitda earnings 10 billion to

26 billion that’s uh a 100 a 260 increase in the earnings of the company over this decade period time very very nice to see and no shocker this is the theme of the channel this is the theme of the recession free cash flow god i love free cash flow this is where the rubber meets the road if you can’t make free cash flow don’t even bother considering the business but

Look at this monster grow seven billion dollars to 22 billion dollars of jack that they make every year good for them that’s fantastic and they can easily easily pay for their capex so what does that mean they have well let’s cover debt it’s covered debt so leverage 28 billion dollars but they make so much money in annual earnings that’s only one times earnings

That they have in leverage so if you’ve got monster cash flow which dwarfs your debt payment what’s going to happen to that cash flow it’s got to go somewhere after it pays the debt after it pays capex all it all it does is it flows through the equity owners and they buy back stock so here’s their stock they’ve been buying back a lot of stock back from one billion

Dollars to 940 billion i expect that to continue to come down they also pay a dividend lastly we want to look at the relative value of this business so again a multiple of earnings it’s currently trading 18 times that multiple has been growing you can see why revenue is growing enterprise value is growing they have very little debt and free cash flow is monstrous

The yield is four percent slightly less i think everybody’s diving into this it probably would have been a better purchase maybe a couple years ago when everything was robust but still making four percent strong cash flow no debt and a service that frankly everybody has to pay for it’s health care so that’s why it’s concluded this is just the the fundamental rock

Solid nature of the health care business or rather the the obligation for people to pay for it rather than his financial surety it’s more that we’re obligated to pay for our health care number five salinas corporation ticker ce now this company is a specialty chemical manufacturing with a global supply chain a global feedstock and a global distribution neighbor


They make a lot of specialty chemicals that go into paints roofing tile medicine food one of their biggest products is citric acid which is in all kinds of food very globally diversified kind of a plotting company but very definitely a stalwart of a business that’s embedded in how we do what we do revenue enterprise has been growing nine dyna 10 billion to 20

Billion a doubling of enterprise value so revenue for this business has kind of plotted along for a long time is it’s a basic chemical companies it’s going to be a specialty chemical company that’s embedded in the fabric economy about six billion dollars recently however they’ve made two acquisitions and i think this number is going to go higher on they bought a

Business from exxon mobil and they bought a business from 3m i believe it’s in their 10k so i think those are going to go north as they get those businesses earnings however have continued to grow as they became more efficient doing what they do well the rubber meets the road is really free cash flow so as revenue was kind of soft-ish earnings have been continuing

To grow and free cash flow has been continuing to go to grow from 760 million to 1.7 billion annual free cash flow easily pays for all the reinvestment in capex that they need to do to maintain their systems and procedures debt levels are reasonable 3.6 billion dollars or total debt as of last fiscal year is only 1.5 times earnings so they have low debt shares

Not saying this this company has been gobbling up shares like no one’s business 160 million shares to fit 211 million shares is a 40 million dollar reduction or in shares or roughly a third of the outstanding shares have been cancelled over the last decade without increasing leverage i think is a really interesting point and they’ve been using free cash flow to

Do it relative value this company trades at 5.7 times earnings currently which is very cheap if you look at the blue line historically you’re probably around 10 so you can see a market multiple expansion here is it snaps back to average plus it’s yielding 12.8 times free cash flow that is a monster free cash flow yield in an economy for a company that is

Absolutely essential to everything that we do in terms of their their uh their their product that they offer so definitely check this company out thank you very much for looking at rational investing and this top five stocks to consider holding during a recession i greatly appreciate it if you want to learn more check out my website i’ve got a link down below

Cashflowinvestingpro.com where i teach you how to be a financial analyst i teach you how to pick stocks not only to look at charts like this but actually dive deep into the numbers what does ebitda mean how to calculate free cash flow how much is capped how much is too much capex what is a market multiple mean how much should you be paying for stock and how to

Build a portfolio of 20 stocks that you can own for 10 20 30 years and help you get where you want to go financially if you don’t want to do the work yourself join the cash flow club i’m kicking out on cashflowinvestingpro.com one pagers on stocks like these where i summarize a decades worth of financial information i give you forecasts on what these stocks i

Think they’re gonna do and i rank five key factors of why and when you should buy this stock and how much you think i think you can make by owning the stock at that time definitely check it out it’s a monthly membership but we kick out a lot of great deals and in that in that club are stocks that are producing 15 20 25 irrs which are rather amazing and this market

Implodes there’s true value out there get your cash out start looking for it is interesting but but build over time i think we’re gonna i think we’re in for a period of kind of pullback in the market but a patient investor can be picking and buying assets as they as they come down okay thank you very much i hope you invite like this show it’s a little different

Format throw a comment down below what kind of format do you like you want to click through lots more volume like this doing charged with decades of history or deep dive irrs and excel sheets let me know what you want to think and throw a comment down below about what stocks i should view next again this is cameron stewart rational investing thank you very much for the time bye

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5 Stocks to Hold During A Recession 2022 | Investing in a down market By Rational Investing with Cameron Stewart CFA