The Motley Fool

3 Companies Which Will Let You Sleep Well During A Market Downturn

With the current market turmoil, investors may be asking themselves – which companies would I invest in which will give me peace of mind?

The recent debacles surrounding Noble Group Limited (SGX: N21) and Hyflux Ltd (SGX: 600) has not helped. When “blue-chip” companies can fall by the wayside and get into serious trouble, investors may be understandably stressed over which companies may be next to fall.

To address that concern, I have highlighted three companies below which have strong balance sheets and which generate consistent free cash flows. These are attributes which should allow investors to sleep well at night.

Straco Corporation Limited

Straco Corporation Ltd (SGX: S85) is an operator of tourism assets, including two aquariums in China and a 90% stake of the Singapore Flyer. As at 30 June 2018, Straco had S$181.4 million of cash on its balance sheet, with only around S$43.9 million of debt. Between 2013 and 2017, a period of five years, the company generated an average free cash flow of S$51.6 million per year. In our view, Straco has a strong competitive moat as it owns high-quality assets. With the company’s net cash balance and ability to generate strong cash flow, it should be able to weather a downturn in the economy. For 2017, the company paid out a final dividend of S$0.25 S$0.025 per share. That gives Straco’s shares a trailing dividend yield of 3.5%, based on its closing price of S$0.71 on Friday last week.

VICOM Limited

VICOM Limited (SGX: V01) is a leading provider of technical testing and inspection services in Singapore. The vehicle test firm has a dominant market share for vehicle testing in Singapore, enabling the company to generate strong free cash flow and maintain a balance sheet that is debt-free. At the end of its 2018 second-quarter, the company’s balance sheet had S$97.9 million in cash and no debt. In addition, between 2013 and 2017, VICOM generated an average of S$30.4 million per year in free cash flow. The company paid out a full year dividend of S$0.36 for 2017. At its last share price of S$5.98 last Friday, VICOM had a trailing dividend yield of 6.0%.

Boustead Singapore Limited

Boustead Singapore Limited (SGX: F9D) was established back in 1828 and is a global service provider of infrastructure-related engineering services and geo-spatial technology solutions. The company has four business divisions – energy-related engineering, real estate solutions, geo-spatial technology and healthcare. Much like VICOM and Straco, Boustead has a consistent record of strong free cash flow generation, even as two of its divisions suffered from a downturn over the past few years. As at 30 June 2018, the company’s balance sheet had S$280.5 million of cash and S$72 million of debt. Over the last five financial years, its average free cash flow per year was S$36.2 million. Boustead also paid out a total dividend of S$0.03 per share for the fiscal year ended 31 March 2018. At its last closing price of S$0.78 on 26 October, the company had a trailing dividend yield of 3.8%.

Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy

The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in Straco Corporation, VICOM and Boustead Singapore.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore has recommended shares of Straco, VICOM and Boustead Singapore. The Motley Fool Singapore writer Chin Hui Leong owns shares in VICOM.