Where should we stash our cash to ride out the recession?
After months of speculation, the dreaded "double dip" has finally become a reality, now that the UK economy has officially entered a second contraction.
It's a meaningless bit of statistics, if you ask me, but some investors pay keen attention to such things. So, what should you hold if you think we're in for a longer spell of stagnation? Apart from the obvious blue chip dividend payers, like Vodafone (LSE: VOD) with its 7%, I reckon the ones to go for are those that have come out of the recent shake-out, and are doing well in sectors that are likely to strengthen.
Towards the end of the last bull run, the "sports fashion" business was booming. And though JJB Sports (LSE: JJB) slumped after over-stretching itself and ending up with crippling debt, it's main competitors, JD Sports Fashion (LSE: JD) and Sports Direct International (LSE: SPD), came out strongly and have amply rewarded those who bought the shares during the depths.
As a recession buster, I favour JD Sports. Why? Well, although forecasts aren't as rosy as Sports Direct's, the shares haven't powered up the way its rival's have over the past 18 months, and its forecast 2013 price-to-earnings (P/E) ratio is only around 8.5, with a 3% dividend expected. In short, I think Sports Direct has too much "growth story" in it, which could be hit by market sentiment turning bearish. But JD Sports, on the other hand, has less downside risk.
Regeneration time
I've liked the construction and regeneration specialist Morgan Sindall (LSE: MGNS) for some time, believing that it is well managed and should be ripe for success once the economy starts to get back on track.
At the time of its 2011 full-year results, I still liked the strong and well-covered dividends and the consistent net cash position. Are they still well placed for recovery?
With a forward P/E of under 9 and a forecast full-year dividend of more than 6%, I think so. And Thursday's interim management statement, released on the same day as the firm's AGM, told us that 2012 is off to a solid start. The 2012 order book is down a little since the start of the year, but at £3.2bn it's still pretty good, and there's £1.8bn of regeneration work included in that.
A good bet
Gambling might not sound like a good sector to bet on during a recession, but it's surprisingly robust. And though profits in the sector did take a bit of a tumble a couple of years ago, I reckon William Hill (LSE: WMH) is looking good.
The high-street bookie has just won the Betview "Boomaker of the year" award for the fourth year running, has been recovering from the downturn pretty well, and is showing some decent fundamentals.
Even though the shares have appreciated well over the past few months, to 279p now, strong forecasts for the year to December 2012 still put them on a forward P/E of under 11 with a dividend yield of nearly 4%, which really isn't bad. Gambling might be a mug's game, but buying William Hill shares isn't.
Buy the market
For anyone confident in the long-term success of stock markets themselves, and who believe we have a new bullish phase for shares ahead of us, why not buy the market itself?
No, I don't mean invest in a tracker (though that is a sound long-term plan), I'm talking about shares in London Stock Exchange Group (LSE: LSE). I doubt we'll have quite the same strong bull that preceded the recent crunch, but I am convinced that we have a healthy few decades -- or even centuries -- ahead of us for investing in shares. And the companies that make the markets and provide the data should do well.
Today, at 1,049p, LSE shares languish on a forward P/E of 11, and in the longer term I'd expect them to trade nearer the market average, which is currently around 14. There's a 3% dividend on the cards too. And in the future, we might well see merger and takeover action pushing the price up.
And a bit of risk
For my fifth pick, I'm going to throw my selection criteria to the wind and go with a bit of a punt, and pick Man Group (LSE: EMG), the investment manager that has been generating controversy of late. Man's shares have been pummelled because of the lacklustre performance of its AHL hedge fund during economic downturns and the subsequent outflow of investment cash, but when I had a look at its latest update, I saw a number of possible outers of value and thought it was worth a punt. So I'll stick with it as my fifth choice to beat the double dip.
Got any ideas for beating the downturn? Please do share them, below.
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Further investment opportunities:
> Alan does not own any shares mentioned in this article.
