There has been constant market chatter about the risk of a major downturn, as the USA-China trade war shows no signs of letting up. The tariffs imposed by both countries on each other’s goods are having a dampening effect on global growth, and Singapore may even enter a recession in 2020 as it is very export-dependent.
If a recession does hit our shores, it would crimp demand for goods and services and also lead to lower levels of consumer spending. The stock market may also fall into a bear market as companies cut back on production, sell less and report lower profits.
As an investor who is always on the prowl for good bargains, a bear market is actually an excellent time to go shopping, provided he has cash on hand to take advantage of the numerous opportunities out there.
So, which are the best companies to buy should a bear market arrive? I look at three examples.
1. Raffles Medical Group
Raffles Medical Group Ltd (SGX: BSL), or RMG, is an operator of hospitals and a chain of clinics in Singapore and China. The group is currently constructing a new hospital in Shanghai, to be opened by 2020, and has also just started operating its brand new hospital in Chongqing in early 2019.
Healthcare will always be a resilient industry as demand is not expected to fluctuate significantly even if the economy weakens. RMG is a market leader in the provision of a comprehensive suite of hospital services in many specialities, and the group also has plans to continue expanding in China. RMG has a strong track record of free cash flow generation and also a prudent management team which should stand investors in good stead for the long-term.
2. Straco Corporation Ltd
Straco Corporation Ltd (SGX: S85) is a tourism operator and owns two aquarium assets in Shanghai and Xiamen, China. The group also owns 90% of the Singapore Flyer, a giant observation wheel located in Singapore, as well as Lixing Cable Car which leads to the Chao Yuan Ge attraction in Xi’An, China.
Though Straco’s business is tied to economic growth and tourism numbers, which will surely dip if there is an economic downturn, the visitors will eventually return again once the economy bounces back. This is because China and Singapore are countries with growing tourist numbers, and the long-term trend for tourism is also positive. Straco also maintains a strong balance sheet with a large cash balance and generates consistent free cash flows every year. Investors should take advantage of any drops in the share price to accumulate more shares of this solid company.
3. VICOM Limited
VICOM Limited (SGX: V01) is involved in the testing and inspection of vehicles in Singapore. The group also has a non-vehicular inspection division which performs testing and inspection for clients in industries such as construction.
During a downturn, Singaporeans tend to hold on to their cars and revalidate their COEs (certificates of entitlement) as they would be unwilling to spend on a new car. This translates to more business for VICOM as older cars would need more frequent inspections.
VICOM also has a rock-solid balance sheet with S$112 million in cash and no debt. The group generates strong free cash flows every year and pays out a twice-yearly dividend as well. Investors can be rest assured that the group will be able to get through a severe downturn relatively unscathed due to its dominant position in Singapore’s vehicle inspection market.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Straco Corporation Limited, VICOM Limited and Raffles Medical Group Ltd. Motley Fool Singapore contributor Royston Yang owns shares in Straco Corporation Limited, VICOM Limited and Raffles Medical Group Ltd.