I think this stock could be one of the best recession investments of 2020

How should we invest to deal with the 2020 recession? I think this company could be one of the most resilient investments of the year.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

We’re into a pretty deep recession, and many investors are looking for defensive recovery stocks. The name CRH (LSE: CRH) might not be on the tips of everyone’s tongues. But the Dublin-based construction company has shown one of the best recoveries of the year so far. The CRH share price crashed hard when the pandemic arrived, losing almost 50% of its value by 18 March. By comparison, the FTSE 100 dipped 35% year-to-date at its lowest point.

Since then, the CRH recovery has been astonishing, despite economies worldwide heading into recession. Just about all of that early loss has been regained, and the shares are a mere 5% down in 2020 so far. Meanwhile, the Footsie still languishes around 20% down.

The company released interim results Thursday, and the share price responded with a 2% drop. That’s hardly anything really.

Pandemic response

Chief executive Albert Manifold said: “As a group we took swift and comprehensive action in response to the Covid-19 crisis, and our ability to flex our cost base and deliver improved profitability, margins and cash generation in a rapidly evolving environment demonstrates the strength and resilience of our business.

It all seems to have paid off, with revenue for the half falling just a modest 3%. And on the earnings front, things are positive. EBITDA rose by 2%, with the firm’s EBITDA margin gaining 70bps to 13%. The company also reported record cash generation, and maintained its interim dividend in line with last year. Looking for a recession investment? CRH doesn’t appear to have seen any recession.


But in times like this, bottom-line profit is not necessarily what matters. I’m looking more for the safety of liquidity these days. On that score, CRH managed to reduce its net debt figure by an impressive $3.8bn — from $11.6bn at the same stage last year, to $7.8bn. That’s still a big figure, but things should improve further by the end of the year. The company said: “As in prior years, we expect a strong operating cash inflow in the second half of 2020.”

At 2019 year-end, the company’s net debt/EBITDA ratio stood at 1.7x, and that’s a level that makes me twitchy. Many investors look for a maximum of 1.5x, and I prefer to see less than that. But we should see an improvement by year-end, and CRH does say it “had $10bn of cash with sufficient liquidity to meet all maturing debt obligations for the next 4.9 years” at 30 June.

Recession outlook

We need to see how CRH progresses as the year develops. But we’re already seeing signs of a so-called V-shaped recession, and we could be out of it relatively quickly. After all, GDP actually improved in May — only by 1.8%, but I find that encouraging.

Mr Manifold went on to say: “The outlook for the rest of the year and into 2021 remains uncertain and is dependent on an improving health situation across our markets.”

So CRH still faces plenty of uncertainty. But from here, I’m seeing a well-managed and resilient company. And it looks like a good defensive recession investment to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s what dividend forecasts could do for the BP share price in the next three years

I can understand why the BP share price is low, as oil's increasingly seen as evil. But BP's a cash…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

This FTSE 100 Dividend Aristocrat is on sale now

Stephen Wright thinks Croda International’s impressive dividend record means it could be the best FTSE 100 stock to add to…

Read more »

Investing Articles

3 shares I’d buy for passive income if I was retiring early

Roland Head profiles three FTSE 350 dividend shares he’d like to buy for their passive income to support an early…

Read more »

Investing Articles

Here’s how many Aviva shares I’d need for £1,000 a year in passive income

Our writer has been buying shares of this FTSE 100 insurer, but how many would he need to aim for…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

1 incredible growth stock I can’t find on the FTSE 100

The FTSE 100 offers us a lot of interesting investment opportunities, but there's not much in the way of traditional…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With an £8K lump sum, I could create an annual second income worth £5,347

This Fool explains how a second income is achievable by using a lump sum, investing in stocks, and the magic…

Read more »

Investing Articles

Here’s what dividend forecasts could do for the BT share price in the next 3 years

With the BT share price down so low, the dividend looks very nice indeed. The company's debt is off-putting, though.…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

28% revenue growth per year and down over 20% in price! Should I invest in this niche FTSE 250 company?

Oliver says this FTSE 250 company has done an excellent job bringing auctioning into the modern world. Will he invest…

Read more »