STOCKS FOR HARD TIMES

Professional investors differ on what might constitute a recession-proof share portfolio. The FM prefers companies with low or no gearing, reassuring cash flows and brands or services with compelling value and operational diversity

Picking shares that will weather an economic downturn is no easy task — especially when the very notion that there are “recession-proof stocks” on the JSE has been shattered. Back in the day, there were certain classes of shares that were regarded as recession proof or “defensive”.

If we look at the JSE it is certainly possible to insulate a portfolio against SA’S daunting economic challenges simply by considering the numerous global counters listed on the JSE. Think of heavyweights such as AB Inbev, Richemont and British American Tobacco (BAT) to the mining giants like Glencore,

BHP Billiton and Anglo American, through to homegrown global ventures like Naspers, Aspen or specialist counters like Trencor and Montauk, as well as a slew of global property companies.

Finding shares that are largely rooted in SA and can withstand a prolonged economic downturn is a trickier proposition. Typically, recession-proof shares would incorporate companies involved in the “sin sectors” — booze, cigarettes and gambling. But recent results from liquor giant Distell and the local gaming counters Sun International and Tsogo Sun certainly show the ravages of curtailed discretionary spending by consumers.

Fast-food companies and food producers, which are normally reliable generators of inflation-beating profit growth, have also taken serious strain of late.

Even private education, one of the JSE’S hottest sectors, has shown vulnerability to the tighter economy, casting doubt on the premise that parents would always pay to get a decent education for their offspring.

Reliable counters that have proved their worth through thick and thin have also recently shown there is a point at which even the tightest ship takes on water. These would include