Over the past year, rising interest rates and fears of a global recession have kept many investors away from high-growth tech stocks. But it doesn’t make much sense to dump all tech stocks just because a recession might be on the horizon. Especially when some tech companies are built to withstand a severe recession.
Here are three recession-proof strategies. Veeva system (VEEV 0.56%), Fortinet (FTNT 4.18%)When Airbnbs (ABNB -0.85%) –And explain why they’re still a great buy in a prolonged bear market.
Veeva Systems is a leading provider of cloud-based customer relationship management (CRM) services for life sciences companies. We serve over 1,200 companies. Pfizer, Johnson & JohnsonWhen Moderna — Also, these clients can track sales activity, store and analyze data, and track clinical trials and industry regulations.
Veeva’s major customers have not been fully impacted by the recession. This is because the economic downturn generally has a limited impact on most drug sales. The recession may force pharma to downsize sales teams and postpone large R&D projects, but if the pharma wants to remain competitive in the saturated life sciences market, he plans to invest in his Veeva. You may remain tied to cloud-based services.
Veeva’s revenue increased 26% in fiscal year 2022, which ended in January of this year, and adjusted EPS increased 27%. For fiscal 2023, analysts expect revenue and adjusted EPS to grow 16% and 11%, respectively, despite efforts to slow down R&D spending across life sciences markets.
Veeva’s slowdown this year has upset some investors, but I believe it’s a fair value at 40x expected earnings. This is a company that dominates the high-growth niche of the CRM market, still has ample pricing power, and will continue to benefit from the long-term expansion and digitization of the life sciences market.
Fortinet is a cybersecurity leader serving more than half a million customers worldwide, including most of the Fortune 500. Twenty years ago, we introduced a next-generation firewall called FortiGate. That firewall became the heart of the Security Fabric, which now provides end-to-end protection services for on-premises, cloud-based, and Internet of Things (IoT) devices.
Cybersecurity companies are usually well protected against economic downturns, as most companies don’t lower their digital defenses to save a few bucks. During a downturn, you may struggle to secure new deals, but you need to remain more resilient than non-mission-critical software companies.
Fortinet’s revenue and adjusted EPS grew 29% and 19%, respectively, in 2021. In 2022, we expect revenue growth of 32% to 33% and adjusted EPS growth, even after cessation of operations in Russia. 42% to 44% (after factoring in this year’s 5-for-1 stock split).
Unlike many other high-growth cybersecurity companies, Fortinet is robustly profitable on both GAAP (Generally Accepted Accounting Principles) and non-GAAP measures. The future price/earnings ratio of 38 also looks very reasonable compared to short-term growth.
Airbnb has disrupted the traditional hotel by allowing anyone to rent out their property. It suffered a slowdown during the pandemic as global travel came to a halt, but recovered quickly once lockdown measures ended. Travel and tourism are macro-sensitive sectors, but Airbnb’s business model It should be able to maintain its resilience even in a recession. He has three reasons.
First, budget-conscious travelers gravitate toward cheaper Airbnb rentals rather than more expensive hotels. Second, hosts are more willing to rent out their properties to generate more passive income. may increase. Finally, it is a digital platform that owns no real estate itself, so you don’t have to take on a lot of debt to buy a new property.
Airbnb’s revenue plunged 30% in 2020, but surged 77% in 2021 as pandemic-related headwinds receded. Analysts expect his earnings to grow 39% this year to $8.4 billion as he moves into post-pandemic recovery. Airbnb could also be profitable on a GAAP basis in his first nine months of 2022 and remain profitable for the full year.
Airbnb stock is trading at 32 times expected earnings. That’s a fair valuation for a recession-proof company that dominates a high-growth niche. These strengths make it a solid stock to hold during an economic downturn.
Leo Sun works for Johnson & Johnson and Veeva Systems. The Motley Fool has positions in and endorses Airbnb, Fortinet and Veeva Systems. The Motley Fool recommends Johnson & Johnson, Moderna, and Pfizer. The Motley Fool’s U.S. headquarters has a disclosure policy.