Brexit uncertainty continues to be the Achilles’ heel for the Footsie, repeatedly dragging it down. The government is pushing for a deal before the 31 October deadline, but there’s no way of knowing if it will actually happen and what the terms will be if it does take place.
Investors, however, can take heart in the fact there are still a number of companies out there that know how to buck the trend.
Diversifying the risks
Consider the example of DCC (LSE: DCC), the business services provider with a focus on energy. Its share price has risen by over 128% in the past five years, despite all the uncertainty and having made only little headway in the past year. It’s not hard to find the reasons for its share price performance, I believe. The company reported an impressive 20% increase in operating profit for the last year and has a sunny outlook, too.
In my view, volume growth in its most profitable segment, LPG, across geographies works in its favour. In any case, it is fairly diversified with the UK contributing to less than half of its revenue. France and Ireland are two of its other big markets, which account for another 25% and all other markets together make up the remaining. Basically, this means that even if Brexit results in a crash for the UK economy, this FTSE 100 share isn’t going under.
I also like that it’s diversified into segments like technology and healthcare. While these make up only a little over 25% of its total revenue, they are growing segments that can hold DCC in good stead in the coming times.
Untouched by the larger environment
While DCC’s share price appreciation is noteworthy, pest-control provider Rentokil Initial (LSE: RTO) has performed even better. In the last five years, its share price has risen by 244%, with an almost 21% increase seen in the last year alone.
Clearly, this is one share that’s managed to remain completely insulated from the volatility around it. To find out why, we only need to look at its geographical spread. North America is RTO’s largest market, followed by Europe. UK accounts for only 11% of its revenues.
I was a little wary of this share after it made a loss in 2018, but am far more confident after its good set of latest results, which showed a 10.7% rise in revenue and 13% increase in operating profits for the first half of the year.
I also like that it’s optimistic about making progress over the remainder of the year. Last, but not the least, pest control demand can be relied upon to be a source of steady customer demand, making RTO even more recession-proof.
The only catch to both DCC and RTO is their high price-to-earnings ratio (P/E) at 24.8 times (12 month trailing) and 27.9x (forward) respectively. Given their continued rise overtime, however, I doubt if the P/E will come off significantly anytime soon. I would definitely buy them on the next dip, if not right away.