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.
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.
Founded by Larry Ellison and two others in the late 1970s, Oracle Corporation (NYSE:ORCL) has grown to become the leader in database management systems. The company’s wide-moat core business and growth in engineered systems make it a safe stock with decent growth prospects.
- Defense: Oracle Corporation (NYSE:ORCL)’s high switching costs give it significant protection from economic downturns and technological innovation. The company’s databases are often critical to the normal operation of its customers’ businesses, and customers are unlikely to switch providers unless there is a deeply compelling reason.
- Growth: Oracle’s primary growth opportunity is in engineered systems, which improve processing speed for customers running analytics and similar computing operations. An improving economy will likely boost the demand for these products in the near-term as Oracle’s customers invest for growth.
Bottom line
Nobody knows for certain which way the economy will go next; it could get much better just as easily as it could get much worse. Additional uncertainty created by partisan disagreement in Washington, D.C. only adds to the inability of managers to know whether to invest for growth or prepare for another downturn.
Unfortunately, investors have no greater insight into the future economic conditions than any other businessmen, so the best strategy is to look for companies that will do well in either scenario. Bed Bath & Beyond Inc. (NASDAQ:BBBY), SanDisk Corporation (NASDAQ:SNDK), and Oracle offer such optionality, making them interesting potential investments for the uncertain investor.
The article Three Companies That Will Perform Well No Matter What originally appeared on Fool.com and is written by Ted Cooper.
Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. The Motley Fool owns shares of Oracle. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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