Investors have been known to try all sorts of methods to obtain decent returns from the stock market, and some even use some risky and arcane methods that may land them good profits, but may take a huge psychological toll on the mind, too. My belief is that investments should generate steady and consistent returns while also providing investors with peace of mind.
Investors should look for companies with stable operating characteristics, long-term demand, and a conservative capital structure. Strong balance sheets and consistent demand for their products and services will allow these companies to weather an economic downturn.
Here are three such companies that could provide investors with peace of mind along with a good night’s sleep.
1. VICOM Limited
VICOM Limited (SGX: V01) is a leading provider of inspection and technical testing services. The group provides a comprehensive range of inspection and testing services in fields including mechanical and biochemical testing, as well as vehicular inspection as mandated by the Land Transport Authority. VICOM is a subsidiary of ComfortDelgro Corporation Limited (SGX: C52).
VICOM has a dominant market share of the vehicle inspection market in Singapore, at around 74.5%. The group also maintains a conservative balance sheet with no debt and has a long track record and history of generating consistent free cash flow. Even if there is an economic slowdown that affects its non-vehicular division, the group should be able to tide itself over and emerge stronger.
2. Singapore Exchange Limited
Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s sole stock exchange. The group operates as a multiasset exchange and provides a trading platform for the buying and selling of securities such as equities, derivatives, and fixed income.
SGX acts as the country’s financial hub as it provides a platform for companies to list and raise capital, and its standing as the only stock exchange in Singapore also provides it with a strong economic moat. Armed with a strong balance sheet and no debt, SGX has sought to diversify its offerings over the years through opportunistic, bolt-on acquisitions to bolster its capabilities in fixed income and foreign exchange. CEO Loh Boon Chye has also been growing its derivatives division, and in its most recent fiscal year, this division took up the bulk (51%) of revenue for the first time.
Even if there is a severe financial downturn, investors will still need to rely on SGX for the trading of derivatives and equities, and this will buffer some of the impact. With a conservative balance sheet, SGX should be able to bounce back again after a crisis.
3. Top Glove Corporation Berhad
Top Glove Corporation Berhad (SGX: BVA) is the world’s largest glove manufacturer with 42 factories in Malaysia (37), Thailand (4), and China (1) as of 26 September 2019. The group has a glove production capacity of 63.9 billion pieces per annum and employs around 18,000 staff.
Top Glove has been the leader in the glove industry and enjoys steady demand from the healthcare industry for its nitrile gloves. With demand set to remain firm in the coming years, Top Glove has embarked on its next phase of expansion by investing in additional factories and production lines. By the end of 2020, the group expects to have 872 production lines, up from 648 at present. Glove production capacity will rise to 83.3 billion pieces per annum.
The sector is recession-resistant given that healthcare is anticyclical and sees steady demand through good times and bad. Investors can rest assured that the demand for healthcare gloves will remain intact even if there is a prolonged downturn.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of VICOM Limited, Singapore Exchange Limited, and Top Glove Corporation Berhad. Motley Fool Singapore contributor Royston Yang owns shares in VICOM Limited and Singapore Exchange Limited.