Four recession-beating stocks

published 19 March 2010

Each week, a professional investor tells MoneyWeek where she'd put her money now. This week:Marina Bond, co-manager of the Rathbone Recovery Fund.

Scanning through company results can be monotonous. This time around, however, it is proving more interesting. Companies have experienced some of the worst trading conditions they have ever seen. Some have emerged stronger, while others are more of a worry. An examination of their balance sheets and cash-flow statements reveals which ones fall into each category. Here are four companies we believe have come out fighting.

New Britain Palm Oil (LSE: NBPO) is a producer of sustainable palm oil, based in Papua New Guinea. Palm oil is used in a variety of consumer products, from soap to biscuits. The company owns just under 50,000 hectares of planted palm oil plantations, with a further 30,000 leased. It also operates six oil mills, a seed production and plant breeding facility, and a refinery in Britain. It is profitable and cash-generative to boot, and operating in a growth market driven by demand from Asia. Recently released results were encouraging and capacity will be stepped up with the proposed acquisition of CTP Ltd, a smaller palm oil grower. In short, this firm has delivered on all promises to date, something the market is starting to recognise.

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Global supplier of precision instrumentation and controls Spectris (LSE: SXS) has also reported positive results and has survived the recession in good shape. Its products are sold into a wide spread of industries, where they enhance productivity with a relatively quick pay-back. The company has high operational gearing (fixed costs relative to variable costs). With costs having been cut, any growth in sales will feed straight down into profits. Spectris should also benefit from a turn in the economic cycle and margin improvements in its underlying business. All in all, this is a solid, well-run company. And by generating plenty of cash it should be well placed to take advantage of new opportunities.

Pace (LSE: PIC) fell out of favour when several analysts failed to upgrade it following strong results. Yet over the years Pace has been transformed from an over-hyped tech stock with a limited client base into a highly profitable, cash-generative firm with more than 100 customers. It's now the second largest set-top box provider in the global 'pay TV' market. Unlike many firms, Pace is currently delivering sales growth. This is partly because its market is growing, and partly down to Pace's capacity to grab market share. Better still, it trades on a single-digit earnings multiple and sports a £74m net cash balance.

Our final pick is the London Stock Exchange (LSE: LSE). It is also looking unloved. Attention continues to focus on its declining market share of UK equity trading, the 20% stake held by Borse Dubai, and Barack Obama's statements about limiting trading and other financial activities. Yet UK share trading only accounts for about 17% of revenues. CEO Xavier Rolet has reduced trading fees; persuaded Euroclear to cut settlement costs; launched 'Baikal' to provide trading facilities for non-transparent orders; and acquired the majority of competitor platform Turquoise for £1. Combined, Baikal and Turquoise will provide the LSE with a pan-European platform for anonymous 'dark pool' trades and exchange-based deals. It will take time for the benefits to come through, but investors' patience could be well rewarded.

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