Economic uncertainty has caused many businesses to remain uncommitted to future plans. Instead of investing heavily in growth or scaling down operations in preparation for disaster, a lot of companies are hoarding cash while they wait to see what happens next.
It is unclear whether the economy will make a significant improvement or plunge into recession once again — and even less clear when the move will happen — but, eventually, something other than the current state of uncertainty will exist.
Therefore, it would be wise for investors to scout out companies that are in a position to grow quickly if the economy turns up, but offer downside protection in case the United States sinks into another recession.
Three companies positioned for all economic conditions
Founded in 1971, Bed Bath & Beyond Inc. (NASDAQ:BBBY) has grown into America’s leading home-furnishings retailer. The company’s recession-resistant products (such as linens and small appliances) and international growth opportunities make it a good company to own in good times and bad.
- Defense: Bed Bath & Beyond Inc. (NASDAQ:BBBY) has $922 million in cash on its balance sheet ($4.23 per share) and no debt. In addition, many of its product categories are viewed as non-discretionary by its customers. As a result, the company will likely remain profitable during the next recession.
- Growth: The company has an enormous opportunity to expand internationally; there are currently only 34 locations in Canada and three in Mexico. Canada’s relatively robust economy presents the biggest opportunity for growth — the company plans to operate 150 to 200 stores in the country. At its maximum, the Canadian stores could eventually account for 20% of Bed Bath & Beyond Inc. (NASDAQ:BBBY) revenue even though it currently accounts for less than 5%. Mexico represents a much smaller growth opportunity; the company plans to open just two additional stores in Mexico this year to gauge consumer preferences in the country.
SanDisk Corporation (NASDAQ:SNDK) is a leader in the design and manufacture of flash memory storage. Although not as predictable as Bed Bath & Beyond Inc. (NASDAQ:BBBY), the company offers investors a high degree of protection via its cash position and has growth opportunities in new markets.
- Defense: SanDisk Corporation (NASDAQ:SNDK) maintains over $2.5 billion in cash on its balance sheet, compared to just $800 million in long term debt. This nets out to $1.7 billion in net cash — about 12% of its market capitalization. Although the company’s operations are not immune to economic downturns, catastrophic failure is unlikely due to the company’s small debt load relative to present earnings and cash on hand.
- Growth: SanDisk Corporation (NASDAQ:SNDK) has significant growth opportunities as one of the leading companies in NAND flash memory technology. The solid-state drives (SSDs) that utilize the technology are quickly replacing traditional hard drives in PCs, tablets, and similar devices. According to a report published by IHS, the SSD market will top $20 billion by 2016, almost triple the size of the market in 2012. If SSDs grow at anything close to the rate projected by IHS, SanDisk Corporation (NASDAQ:SNDK) will have a massive tailwind for at least two-and-a-half years.