As we saw earlier this month, volatility is a dynamic beast that can rest before waking up when you least expect it. Morgan Housel, a former expert on The Fool, deals with the concept of wonder that leads to variability in his book, The psychology of money. Housel quotes Stanford professor Scott Sagan as saying, “things that never happened happen all the time.” A Housel, predicting when the next crash will come or what it will look like is less important than accepting volatility and positioning your portfolio accordingly.
With that, we asked some of our contributors which companies are worth buying even if the stock market falls again. They like it Dover (NYSE: DOV), Texas Pacific Domain Corporation (NYSE: TPL), and Univar Solutions (NYSE: UNVR).
An industry distiller seems to fit well with that survival machine
Scott Levine (Dover): Don’t forget batteries and radios. When it comes to preparing for a stock market crash, it is crucial for investors to bolster their records with potentially declining stocks – stocks like Dover.
Over its nearly 75-year history, Dover, a mixed industry manufacturer, has withstood many market declines, and has continued to deliver market returns to investors. Over the last 20 years, for example, the S&P 500 has gone up 412% while Dover has gone up nearly 600%.
Experienced investors, however, recognize that just because the stock has outperformed in the past does not necessarily mean it will do just as well in the future. . So why is Dover an operating option for investors fretting about a potential market crash? For one, the company is able to thrive at a time in difficult economic environments. Last year, for example, Dover achieved impressive free cash flow growth. While many other companies struggled with the challenges posed by the global pandemic, Dover generated $ 939 million in free cash flow, representing a 24% increase over the $ 758 million it generated. in 2019.
Investors will find that Dover appears to be poised to succeed in 2021 as well. During the company’s fourth quarter 2020 earnings presentation, executives reported that the company ended the year with $ 1.8 billion in reserves, a 21% year-over-year increase. In addition, regulatory projections that revenue in 2021 will grow by around 8% to 10% compared to the $ 6.7 billion it retained in 2020. Wages are also likely to rise – the company expects 2021 EPS of $ 5.42 to $ 5.62 – a significant increase over the $ 4.70 reported in 2020.
But wait, there’s more. Dover’s recognition as King of Dividend provides another compelling reason why it would be wise for investors to build up shares before the next market crash. Regulators remain committed to giving back to shareholders – the company has increased its payments by 65 years in a row – suggesting that investors find their own amid the volatility of the comfort market in getting some cash thanks to the Dover division while experiencing storm weather.
Black gold at best
Daniel Foelber (Texas Pacific Land Corporation): Energy was the single worst performing sector in 2018, 2019, and 2020. Texas Pacific Land Corporation (TPL) was one of the only oil stocks to keep up with the market in the third sector. that year. The year is different. Energy has so far been the best performing sector thanks to higher oil prices. Shares of TPL are up a staggering 135% in the last three months. So how has TPL been able to outperform other oil stocks in both bad and good times? Hold a lump of earth with lots of oil.
TPL owns 880,000 acres of oil-rich land in West Texas, which is about 4.5 times larger than New York City. The acquisition of this land by oil has nothing to do with it but the 18th century railway industry. Oil, pipeline, infrastructure and utilities companies pay TPL to use its land for a number of purposes. Use uplift as oil prices rise. And oil prices are rising as demand picks up faster than expected. Oil prices are now at their highest levels in more than a year, giving West Texas producers a strong incentive to complete more wells.
Despite lower oil prices, TPL was able to generate more than $ 300 million in revenue and $ 207 million in operating cash flow last year. In 2020, it distributed more than 97% of that cash flow to shareholders in the form of special shares.
With no debt, over $ 300 million in cash, access to upside down, and virtually risk-free down, TPL as a business looks like a no-brainer. The question arises as to whether you should buy this business at its current price or wait for a withdrawal. Investors who are concerned about a solace stock market crash can take it for granted that TPL has a tendency to generate income regardless of Mr. Market’s approach.
Univar Solutions: Self-help
Lee Samaha (Univar Solutions): This particular chemical company is worth buying because its growth prospects are largely dying out internally, and its valuation (based on hitting its targets) is pretty cheap. In fact, it is so cheap that it could add value even because of a common market sale.
Managers expect to earn 9% interest, tax, depreciation, and depreciation (EBITDA) by the end of 2022, known as the “S22 Program.” Note that this does not mean an EBITDA margin of 9% in 2022 overall, but it does mean a figure of 9% or higher for 2023.
As the analyst’s consensus for revenue in 2022 is $ 8.85 billion it means at least $ 800 million in EBITDA in 2023. That would put Univar on venture value (market cap plus debt net) or EV-to-EBITDA valuation of 6.7 times in 2023.
Not only does that look pretty cheap in 2023, but a near – term valuation of the company looks attractive as well. Management expects a free cash flow of $ 250 million to $ 300 million by 2021, putting the company on a full-year price-to-FCF multiplier of between 12 times FCF and 14.5 times FCF. For information, Univar’s adjusted EBITDA margin was 7.7% in 2020.
To achieve S22 Program targets, management plans reduce its cost base, streamline its operations, and invest in digital technologies to improve operational performance. At the same time, the company is integrating the transformational construction of Nexeo Solutions and continues to refocus the industry towards specialty chemical circulation while selling businesses. non-basic.
Chief executive David Jukes said on the recent employment call that the “S22” program is well on track to deliver higher compensation, growth, and 9% EBITDA margins by the end of the year 2022 through global excellence and action, “and if the company can get there then the stock could be highly valued.
This article represents the opinion of the writer, who may not agree with the “official” recommendation position of the Motley Fool chief consulting service. We are motley! Questioning an investment dissertation – even one of our own – helps us to think critically about investing and make decisions that will help us become softer, happier and richer.