Economic recession is not a common phenomenon and it is not every decade that has one. Investors can, however, reap rich dividends by assuming one is imminent and creating a portfolio of recession-proof stocks such as EZCORP Inc (NASDAQ:EZPW), CONN’S, Inc. (NASDAQ:CONN), and Hertz Global Holdings, Inc. (NYSE:HTZ). These companies not only offer prospects of recurring cash flows but also a degree of certainty regarding the same. Here is a closer look:
Despite being one of the largest in its category, with a marked cap of over $1 billion, EZCORP Inc (NASDAQ:EZPW) is not a stock regularly covered by many analysts. The company is one of the largest pawnshop operators in the United States and employs nearly 7,800 people in 1,400 shops. Understandably, the previous few years were especially fruitful for the company as it boosted its top line from $597 million in 2009 to $987 million in 2012, while profits more than doubled from $68 million to $143 million.
This uptrend is likely to continue in the coming quarter as well, when the company announces its third quarter results later this month. The recession has probably passed but the company has been able to protect its double digit net profit margin. The stock trades at a price earnings ratio of just 7.4 and at a premium of 5 percent to its book value. Surging earnings in the future mean the forward price earnings ratio further drops below 7. A debt equity ratio of only 0.2 is another positive in this stock.
Sub prime returns and bolstering profits
Texas-based CONN’S, Inc. (NASDAQ:CONN) is a specialty retailer which dabbles in selling and offering credit on durable consumer products such as appliances, electronics, and furniture. Retail sales and consumer credit are two of its major sources of revenue. This is not really a bottom bargain but one that is expanding fast and in the process has grown its profits and margins. During the three months ended April 30, the company’s profits grew nearly 25 percent to $251 million but profits almost doubled to $22.2 million.
While many big box retailers continue to struggle with headwinds from online sales channels, CONN’S, Inc. (NASDAQ:CONN) has thrived and the secret lies with its consumer credit segment. This financing solution comes in handy for an under-served population which is typically unbanked and has credit scores between 550 and 650. As a result of its steady progress in reducing interest expenses, Conn’s debt equity ratio stands at a respectable 0.58 now.
Hertz Global ‘buy’ ratings
Hertz Global Holdings, Inc. (NYSE:HTZ) is another stock that investors can consider for going long. Many surveys have pointed out that more and more people are realizing they don’t need to buy a car for mobility due to availability of other options. Important among these are rental firms such as Hertz. Also noteworthy is the indifference of today’s teenagers towards car ownership.
This indifference has been fueling Hertz Global Holdings, Inc. (NYSE:HTZ)’s top line in recent years and is likely to contribute further as well. In terms of numbers, the stock is available at a price earnings ratio of 47 but it drops to just 11 on forward basis. A price by sales ratio of 1.2 also indicates the stock is attractively priced and analysts are not wrong in giving Buy ratings. High reliance on debt is a problem but car rental is a capital intensive business and its debt equity ratio of 8 is actually less than competitors such as Avis.
While Hertz Global Holdings, Inc. (NYSE:HTZ) may not sound like a good opportunity to value buyers, both EZCORP Inc (NASDAQ:EZPW) and CONN’S, Inc. (NASDAQ:CONN) are free of hefty reliance on debt and still offer strong cash flows that are only going to get better.