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I the>c''1~imes September 11, 2011
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In bad times,
nurse a beer,
suck a candy,
and call friends
Here are five stocks
tipped to weather
another global
economic meltdown
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Senior We-re-it"e_r
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Three years ago, It was the collapse
of the sub-prime mortgage market
in the United States that brought
the world to its knees. This time, it's
the sovereign debt woes in Europe
that are threatening to spiral out of
control.
If left unattended by policymak­
ers and politicians, the strains that
are already visible in money mar­
kets could potentially cause a liquid­
ity crunch engulfing the entire Euro­
pean banking system.
As we know from experience, a
crisis of confidence in anyone pock­
et of global banking can have power­
ful ripple effects elsewhere in the
world.
A tell-tale sign of an impending
credit freeze is the interest rate at
which banks can access short-term
funds from other banks. In normal
times, large banks don't have to
shell out much of a premium over
short-term borrOWing costs of a sov­
ereign. It's only when Bank A loses
confidence in the solvency of Bank
Bthat the premium begins to rise.
That's what's happening. Lend­
ers that are borrOWing euros for
three month' in the interbank mar­
ket are paying a higher premium to­
day for their perceived lack of credit­
worthiness than they did just before
the collapse of Lehman Brothers
three years ago.
It might eventually come to
nothing, but why take a chance 1
Even optimistic investors must
have a Plan B ready. This column is
about preparing for Armageddon
and hoping it doesn't come.
In my opinion, Singapore inves·
tors with a bias for owning trusted,
large-cap names here should tweak,
their portfolios in such a way that
they won't get whipped by a reces­
sion that comes together with a
financial meltdown.
Once again, the same disclaimer
applies: I don't own these stocks
and have no intention of buying
them. Do your own homework
before risking yOUT money on them.
My rules for selecting these
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stocks are simple enough. Among
all issues with at least $$00 million
in market value, I considered only
those that had weathered the 60 per
cent drop in the Straits Times Index
between Oct 11, 2007 and March 9,
2009 relatively well, ending up near
-­
the top of the heap among all iist­
ed sh,ares.
5T
iLlL'~TRATION
ADAM LEE
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I
,
the top of the heap among alltist­
ed shares.
Next, I pruned the tis! by drop­
ping all stocks that hav~ giv~n
worse than a minus S per cellt
return this year.
I also removed from l'onsidt'ra­
tion any company whose debt ill
excess of cash on its books - or net
debt - is three times or more its
free cash flows.
A word about free cash flows:
This is the cash a company garners
from operations on a 12-month
basis after subtracting capital ex­
penditure. The more free cash a
company generates, the better suit­
ed it is to withstand a dislocation
in finandal markets and maintain
dividends.
I was left with five stocks:
• Asia Pacific Breweries (APB)
"lOsing inflation in our main mar­
kets eompounded by the recent glo­
bal economiC uncertainties may
dampen consumer demand," the
maker of Tiger beer said last
month.
While a slackening of demand
may indeed occur, APB is a
cash-rich company with a net debt
that's less than half its annual free
cash flows. APB shares have per­
formed very well so far this year,
and the stock may be iust the one
to nurse if another global crisis
unfolds.
• Thai Beverage
There', something soothing about
IJl'N in bad times, it seems. Thai
Ikvt'ra~(' was taking in fr('€ cash at
an ilnnllal rate of $625 million
when th(' stock market tidt· tUrIlt'd
thing goes horribly wrong with the
merger, which is yet to be
approved by China's anti-monopo­
ly watchdog, Nestle'" offer price of
$4.35 should sllpport the stock.
• StarHub, Ml
StarHuh and M I lllilkt, llw ~'1I1 hi'
('all~(' of their .\111 Il'd.ll h'l' ~ oI .. h JlO',1
tlons.
The telcos' free cash fiows had
managed to keep investor losses
limited to between 23 per cent and
30 per cent during the 17-month
slide that began in October 2007.
Being cash-rich may serve them
well once again.
Both stocks have given positive
returns .\0 far this year. "There is
room for Ml to increase its divi·
dend this year beyond its typical
80 per cent payout given the im·
proved financial parameters," Kim
markets to overcome stagnant
Eng Securities analyst Stephanie
Wong and her colleagues noted in
growth."
a recent study. "Going for yield
• Hsu Fu Chllntemational
alone, StarHub stands out wllh a
Talking of acquisition targets, an­ forward yield of 7.3 per cent."
other company that meets my crite­
When times are bad, you want
ria is the China-based candy maker your stocks to earn a decent
Hsu Fu Chi, in which Nestle SA income and hold their capital val­
plans to acquire a 60 per cent ue the best they can. In short, you
stake This stock was remarkably want .stocks that behave like
resilient during the last big bonds. Do my ideas qualify? You
decidp
stock-market downturn. It is cur·
rently trading just 5 per cent below
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andYFT:l@"p~.,!:(rm. ';~1
Nestle's offer price. Unless some­
in the final quarter of 2007. Any­
one holding the stock back then
came out relatively unscathed in
March 2009. This year, Thai Bever·
age shares have been stable.
The company's net debt is only
slightly in excess of its 12-month
free cash flows. Besides, "Thai Bev­
erage could be an acquisition tar­
get", says Standard Chartered Bank
equit)' analyst Nirgunan Tiruchel­
vam. "The world's major beer com­
panies are rushing to emerging