What happened to the US Market?
5 May 2022 was a brutal day in the US market with the steepest drop since June 2020. All major indices plunged with the Dow closing more than 1000 points lower or 3.12% lower and Nasdaq taking a near 5% hit. The broad S&P 500 also took a 3.56% hit.
This wiped out the strong performance a day earlier on 4 May 2022 after the FOMC meeting where the Fed seeked to contain rate hike expectations which led the Dow to rise 932.27 points, or 2.81%, to close at 34,061. The S&P 500 gained 2.99% to 4,300. The tech-heavy Nasdaq Composite jumped 3.19% to 12,964. It was the biggest gain since 2020 for both the S&P 500 and the Dow.
With such a broad based sell off, even stocks that are well known to be fundamentally strong and captains of the industry were also not spared.
In this article, we identify 8 stocks across different industries which we think are resilient. These stocks have businesses that either have a good moat or are less affected than other companies due to their strong business proposition and financial stability. They will also have a recent record of growth and expected to grow in 2022.
8 Resilient stocks we are happy to buy in a crash
| Company | Sector | Past 5 Year Returns | 5 May 22 Performance |
| Alphabet Inc (NASDAQ: GOOGL) | Technology | +143.95% | -3.03% |
| Apple Inc (NASDAQ: AAPL) | Technology | +301.67% | -4.28% |
| Advanced Micro Devices, Inc. (NASDAQ: AMD) | Technology | +733.66% | -3.92% |
| Taiwan Semiconductor Manufacturing Co. Ltd. (TPE: 2330) | Technology | +156.31% | -2.76% |
| Procter & Gamble Co (NYSE: PG) | Consumer staples | +79.21% | -1.18% |
| Target Corporation (NYSE: TGT) | Consumer staples | +313.55% | -2.06% |
| Mcdonald’s Corp (NYSE: MCD) | Consumer staples | +71.24% | -1.57% |
| Skechers USA Inc (NYSE: SKX) | Consumer discretionary | +60.46% | -3.19% |
1) Alphabet Inc (NASDAQ: GOOGL)
Alphabet Inc is the parent company that holds assets such as Youtube and Google. It also has a range of products and services each with hundreds of millions of users such as Cloud, Android, Maps, Play Store and Chrome.
YouTube has more than 2.6 billion active users. YouTube Premium and Music together have more than 50 million subscribers in the world. More than ¼ of the world’s population use YouTube every month. Around half of the internet users around the world has access to YouTube.
Google dominates the search engine market with more than 92% share in the markets in which it operates. Due to the fact that it overwhelmingly dominates the search engine market, it also dominates the online advertising industry and has control on the way ads are selected and pushed to consumers.
In spite of challenging comparatives and continued macroeconomic headwinds, it was able to grow its 1Q22 revenue 26% YoY on a constant currency basis and maintained stable operating margins at 30% which attests to its resilience.
2) Apple Inc (NASDAQ: AAPL)
Apple is a tech stock that needs no introduction with products such as the iPhone, iPad and MacBook, used across the globe. The company posted a March quarter revenue record of $97.3 billion and quarterly earnings per diluted share of $1.52, both up about 9% YoY as customer response to new products continue to be robust.
Apple’s CFO Luca Maestri warned of challenges in the immediate quarter, including supply constraints that could hurt sales by up to $8 billion. With revenues close to $100 billion a quarter, an $8b billion hit to revenues would only impact Apple by 8%. Some market watchers expect this to be a timing issue, meaning Apple could catch up on its sales in the following quarter.
Due to its robust financial position underpinned by a net cash position of about $80 billion, Apple also extended its share buyback program by $90 billion and raised dividends by 5% to $0.23 per quarter.
3) Advanced Micro Devices (NASDAQ: AMD)
AMD has been a stock on a strong uptrend since the business turned around a few years ago. Its acquisition of Xilinx was completed on 14 February 2022 and is expected to contribute more than $1b of revenue per annum underpinned by strong demand and an expanded product line up.
AMD recorded a blockbuster revenue performance of 71% YoY (up 55% excluding Xilinx) and gave a strong financial outlook for 2Q22 and FY22. For FY22, it expects to grow 60% YoY and achieve a gross margin of 54%.
AMD’s gross margin also continued expanding over the quarters and provided a forecast of 54% for both 2Q22 and FY22.
4) Taiwan Semiconductor Manufacturing Co. Ltd (TPE: 2330)
TSMC is the world’s largest and widely regarded as the best semiconductor foundry. It has been one of the biggest beneficiary of the technology sector growth story arising from broad based adoption of various technologies. TSMC is probably one of few companies in the world where big names such as AMD, Apple and Intel are fighting for TSMC to fulfil more of their order requirements.
Its 1Q22 revenue increased 35.5% while earnings increased 45.1% YoY. Compared to 4Q21, 1Q22 results represented a 12.1% increase in revenue and a 22.0% increase in net income. Gross margin for the quarter was 55.6% and is forecasted to tick up slightly for the rest of the year.
As TSMC provides essential chips in many industries, it has the ability to also reduce seasonality impact from its customer’s demand cycle, this was proven when its most recent quarter’s business was supported by high performance computing (HPC) platform and automotive-related demand with the next quarter continue to be supported by HPC and Automotive-related demand, partially offset by smartphone seasonality.
With demand for chips remaining strong as the widespread adoption of various tech continues, TSMC has made plans to spend more than $40 billion to grow its capacity. With its expanded capacity, growth will follow through and will make this company very resilient.
5) Procter & Gamble Co (NYSE: PG)
In spite of headwinds such as supply chain issues and inflationary pressures, P&G reported 3Q22 net sales of $19.4 billion, an increase of 7% YoY. Excluding the impacts of foreign exchange, acquisitions and divestitures, organic sales increased 10%. Diluted net earnings per share were $1.33, an increase of 6% YoY.
P&G raised its outlook for FY2022 (period ending 30 June 2022) all-in sales growth by 1% to a range of 4% to 5% YoY. This would have been another 2% higher if not for the strong USD causing headwinds to sales growth for the FY.
It has also seen its global market share expand in recent years with growth in nearly all its segments namely Beauty, Grooming, Healthcare, Fabric & Home and its Baby, Feminine and family care.
With a total of 65 brands, many of them iconic consumer staples, such as Pampers, Braun, Gillette, Pantene, Ambi Pur, Febreze and Vicks, P&G is expected to be one of the most resilient company featured in this article.
6) Target Corporation (NYSE: TGT)
Target was a company that surprised on the upside as many expected them to be impacted by the pandemic, however its sales grew 12.7% in FY21, on top of 19.3 percent in FY20. Comparable traffic grew 12.3%, on top of 3.7% in FY20. As sales outpaced traffic, this indicates that shoppers are spending more at Target.
Total sales have grown more than $27 billion since 2019, reflecting more than $14 billion of additional store sales and digital sales growth of nearly $13 billion. All five core merchandise categories delivered double-digit comparable sales growth in 2021, on top of unprecedented growth in FY20. Operating income margin rate of 8.4 percent expanded nearly 1.5% from FY20.
Similar to P&G, in spite of headwinds from supply chain constraints and inflationary pressures, Target expects low- to mid-single digit percentage revenue growth and an operating margin rate of at least 8% in FY22. However, no one is immune to the macroeconomic issues as the Company expects quarterly, year-over-year profit performance to be variable during the year, and generally improve as the year progresses.
Target is not resting on its laurels as it has set out plans to improve the shopping experience by first improving employee benefits and also defend its margin with new supply chain facilities and sortation centres so as to meet its FY22 targets.
7) McDonald’s Corp (NYSE: MCD)
McDonald’s has been impacted by the Russia-Ukraine conflict as it had 850 stores in Russia and 108 stores in Ukraine. Together these account for roughly 2% of McDonald’s global sales and 3% of its operating income.
McDonald’s temporarily suspended its operations and closed its restaurants in Ukraine since the end of February and since the middle of March in Russia. Since then, it incurred $127 million of expenses; $27 million due to its continued payment for employee salaries, lease and suppliers and $100 million for inventory that would likely have to be disposed of.
Globally, McDonalds’s has more than 40,000 locations with 93% of these restaurants franchised and operated by independent local business owners. However, in Russia, the ratio is opposite with more than 80% of restaurants owned and operated by McDonald’s. McDonald’s is also one of the biggest land owners on this planet, owning 55% of the land and 80% of the buildings for its restaurants.
If McDonald’s chooses to permanently exit Russia, it would have to write off significant levels of capital expenditure.
Even with all this gloom, McDonald’s still delivered strong 1Q22 results with global sales increasing 11.8% YoY. The US saw a 3.5% increase while its international markets saw a more than 15% increase. Excluding the costs incurred to support McDonald’s business in Russia & Ukraine, earnings per share grew by 19%.
McDonald’s has also clearly came out stronger from the pandemic and has seen 2021’s performance beat 2019’s. It is also forecasting growth for 2022.
McDonald’s and its golden arches are an iconic consumer staple, even attracting its own biological drama based on Ray Kroc, the man who is credited with the global expansion of McDonald’s. The company has gone through multiple world events and have come out stronger, there is no doubt that McDonald’s will continue to be around for a long time.
8) Skechers USA Inc (NYSE: SKX)
Skechers is an American athletic footwear brand that was founded in 1992 and quickly grew to become one of the largest athletic footwear brands in the US. Unlike Nike, it’s price point appeals better to the masses.
Despite its relatively smaller scale compared to the other companies featured in this article, it is also another company that has stood out with its resilience as the company’s revenue has grown 20% when comparing FY21 to FY19. Its FY21 profit has more than doubled from FY19 as well.
Similarly, in spite of numerous obstacles posed by the pandemic and other global issues, Skechers executed well against its global growth strategy. The growth was achieved across all geographic and operational segments, in part due to its e-commerce strength which enabled Skechers to grow strongly especially in regions such as China.
In 2022, Skechers intends to roll out more e-commerce sites around the world. It is also finalising plans to enter the metaverse, creating an entirely new opportunity for the Skechers brand and expects 2022 to be another record year supported by its strong net cash position.
Don’t panic, keep going
Warren Buffett, the sage of Omaha (and investing) once said, “The stock market is a device for transferring money from the impatient to the patient”.
He also said that “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
Investors who have been taken aback by the drastic plunge of many stocks this year may reflect on these two quotes which we have taken to heart and identified 8 stocks which we think are resilient due to reasons such as the strength of their business and financials.
These are stocks that have a strong track record of growth and are poised to continue to provide stable growth and returns to patient investors.
