By Ilana Polyak for the Washington Post
Kiplinger's Personal Finance Sunday, February 15, 2009
Here are several companies that not only will likely hold up during this recession but may even thrive.
As the employment picture grows bleaker each day — the jobless rate stands at 7.6 percent, a 35-year high — more people are heading back to the classroom to sharpen their skills. And Apollo Group, the nation's largest for-profit education company and parent of the University of Phoenix chain, benefits handsomely.
Degree enrollments were up 18 percent in Apollo's first quarter, which ended Nov. 30, compared with the same period a year earlier. That fueled a 22 percent increase in earnings for the quarter.
"To have positive earnings growth now is something," says Shawn Price, manager of the Touchstone Large Cap Growth fund. "But to have double-digit earnings growth in this environment is tremendous."
As the largest auctioneer of construction and agricultural equipment, Ritchie Brothers Auctioneers experiences an upswing when financially pinched companies need to get rid of machinery. In fact, it had a bumper crop of sales in 2008, a record $3.6 billion, representing a 12 percent increase from 2007 in gross auction proceeds.
Ritchie's large global network brings together large numbers of buyers and sellers. The company rarely purchases equipment outright, so it has little inventory risk.
This business is likely to grow as the recession worsens and more companies find themselves in need of cash. And some firms may prefer to buy used equipment as part of belt-tightening measures. Analysts expect auction prices to fall, but Ritchie Brothers can still do well.
Analysts anticipate 13 percent profit growth in 2009.
The growing number of foreclosures hurts many businesses; after all, if consumers can't afford their mortgages, they won't have money to spend elsewhere. However, the problems of strapped homeowners can yield a bonanza for Public Storage, a real estate investment trust. "When people shoehorn themselves into a 5,000-square-foot house and then have to rent a 1,000-square-foot apartment, that means they need to rent the cheapest thing they can find for their stuff," Price says.
Self-storage REITs held up well last year. The group had an average return of 5.1 percent while the typical property-owning REIT declined by 37 percent, according to the National Association of Real Estate Investment Trusts. Analysts expect earnings growth to slow to 2.2 percent this year, then jump by more than 5 percent in 2010.
Consumers and businesses aren't the only ones in financial straits. Municipalities are struggling, too, and that could boost American Water Works, the Voorhees, N.J., water utility. As cities and states find it too expensive to run their municipal water systems, American Water can swoop in to buy the distressed assets.
American Water had been a subsidiary of Germany's RWE before it was spun out in an initial public offering last April. Under RWE, American Water was stymied by a number of contracts with low profit margins. But as those contracts expire, the company is replacing them with more-profitable deals.