Is a recession coming this year? That’s a question on all investors’ minds.
The warning bells that started last year have not stopped since. In fact, both the International Monetary Fund (IMF) and World Bank have warned of a potential global recession this year.
With so much uncertainty in the stock market, what can investors do to prepare their portfolio for the potential global recession?
All investments are vulnerable to the economic slowdown but there are some that are deemed as “recession-proof” or “recession-resistant” in that they’re a natural hedge against inflation.
So, here are three top recession-proof stocks that investors should consider buying in 2023.
1. Sheng Siong
One of Singapore’s largest supermarket chains, Sheng Siong Group Ltd (SGX: OV8), is among the first names comes to mind when investors are looking for recession-proof stocks to invest in.
This is obvious since consumers in Singapore will still need to spend on everyday essentials and necessities such as bread, eggs, fruits, vegetables, and toiletries.
During recessions, consumers tend to shop at discount retailers and supermarket chains that are perceived to offer good value, such as Sheng Siong.
Over the next three to five years, management has guided that there will be three to five new stores opening annually.
Meanwhile, Sheng Siong’s China subsidiary is also profitable and could benefit from the reopening trend in China.
In Q3 FY2022, Sheng Siong’s gross margin continued to expand, rising to 29.4%, despite higher costs.
The increase was mainly due to the increase in sales mix of products with higher margins.
Sheng Siong also has a strong balance sheet to support expansion and help the company to withstand the near-term uncertainty of a potential global recession.
2. Raffles Medical Group
Aside from consumer staples stocks, the healthcare industry is also relatively immune to economic slowdowns due to the urgent need for its services.
Raffles Medical Group (SGX: BSL), or RMG for short, is one of those recession-proof healthcare stocks that investors should look into.
RMG is an integrated healthcare services provider that operates in 14 cities throughout five countries in Asia.
The healthcare group has three tertiary hospitals and over 100 clinics that offer a comprehensive range of healthcare services.
Since the reopening of international borders, business has improved sharply with more patients and tourists visiting the hospitals and clinics.
During the first nine months of FY2022, revenue was up 9% while net profit soared 57.3% from a year ago.
RMG also has a strong balance sheet which is net cash positive, which would play an important role during any period of economic weakness slowdown.
3. Parkway Life REIT
One other interesting stock that investors need to look into is Parkway Life REIT (SGX: C2PU), which is a healthcare REIT that has exposure to Singapore, Japan, and Malaysia.
As of 30 September 2022, Parkway Life REIT’s total portfolio stood at S$2.3 billion with three Singapore hospitals, 57 Japanese nursing homes and strata-titled units in MOB Specialist Clinics in Kuala Lumpur, Malaysia.
Gross revenue is protected as Parkway Life REIT’s portfolio has a long weighted average lease expiry (WALE) of 17.2 years.
Given that its assets are involved in the provision of medical and aged-care services, demand should remain resilient in the face of a recession.
Recently, Parkway Life REIT announced major refurbishment works for its hospital in Singapore, Mount Elizabeth Orchard, with an expected investment of S$350 million over the next three years.
This will modernise its hospital to be one of the leading integrated medical services hub in Asia.
Its annualised distribution per unit (DPU) of S$0.1412 indicates a forward distribution yield of 3.7%.
While the yield might not seem attractive, Parkway Life REIT has consistently grown its distribution to shareholders over the past 15 years.
Stay invested with a bias towards defensive stocks
The months ahead will continue to be filled with uncertainty as investors question the potential of a recession and how long the economic slowdown will persist.
There is no definitive answer to this, but long-term investors will know the merits of keeping calm, staying invested and dollar-cost averaging (DCA-ing) into the market.
I believe that investors should continue to invest in defensive stocks such as consumer staples stocks, healthcare services providers, REITs, and dividend-yielding stocks.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
