There's been talk about a possible recession for months, but the truth is that nobody really knows if there will be one. And while there's not much that individual investors can do about macroeconomic events like recessions, it's understandable to want to own businesses that might be more recession-resilient than others.
For various reasons, CrowdStrike (CRWD -0.68%), Alphabet (GOOG 0.74%) (GOOGL 0.55%), and ASML (ASML -1.03%) are three companies with qualities that may help them hold up better than most during a recession. Let's take a closer look and see why.
1. CrowdStrike
CrowdStrike is a leader in the cybersecurity space because of its Falcon platform which uses artificial intelligence (AI) to stop threats quickly and protect every other user and device in its network immediately. Put another way, a breach in one part of its system helps the platform learn and protect everyone else.
The impressive results prove that CrowdStrike is quickly becoming a top choice for many large businesses. In fact, more than half of Fortune 500 companies use CrowdStrike. In CrowdStrike's fiscal year (FY) 2023 (which ended in January of 2023), subscription customers grew by 41% compared to FY 2022, while revenue increased by 55%. The growth since 2021 has been equally impressive.
|
FY 2021 |
FY 2022 |
FY 2023 |
|
|---|---|---|---|
|
Subscription customers |
9,896 |
16,325 |
23,019 |
|
Revenue |
$874 million |
$1.5 billion |
$2.2 billion |
Data source: CrowdStrike.
CrowdStrike customers also stay and spend more over time. The company's dollar-based net retention rate is consistently above 120%, and almost two-thirds of customers use 5 or more of the company's products (modules).
Most importantly, cybersecurity is something businesses simply cannot live without. A potential recession may result in companies tightening their belts, but it's almost impossible to imagine cuts to cybersecurity.
2. Alphabet
Alphabet, the parent company of Google, has another kind of recession-resilient advantage -- cash. At the end of 2022, Alphabet had $114 billion of cash and short-term investments on its balance sheet and only $13 billion in long-term debt. This means that the business could pay off the entirety of its debt using only the cash it has on hand and still have over $101 billion left over.
Cash is a wonderful thing to have during a recession. It provides a safety net should Alphabet see a reduction in revenues, but it also puts Alphabet in a position to acquire other companies. Smaller and lesser capitalized companies could struggle during a recession, making them prime acquisition targets for large, cash-rich companies like Alphabet.
Alphabet posted $283 billion in revenues in 2022 with 21% of that falling to the bottom line as net income. The company also generated $60 billion in free cash flow for the year. In fact, over the past 10 years, Alphabet has never generated less than $11 billion in free cash flow for a full year.
GOOG Free Cash Flow (Annual) data by YCharts.
It's likely that Alphabet will be able to protect this enviable cash position for years to come, further protecting the company from recessionary pressures.
3. ASML
ASML is a vital part of the semiconductor supply chain. The company manufactures and sells the extreme ultraviolet lithography machines that are necessary to produce the world's most advanced chips. And they're the only company in the world that does this.
It's true that the semiconductor industry is cyclical, but as more and more of the world goes digital, the demand for chips should continue to increase, making potential downcycles less frequent and less severe.
That said, even if there is a slowing in demand, ASML is poised to handle any near-term recession due to its backlog. ASML ended 2022 with more than 40 billion euros of backlog, an increase of 67% over 2021. Essentially, ASML is receiving orders for its machines at a pace greater than it can manufacture them.
This means that ASML has enough of its lithography machines ordered to keep its facilities at full operating capacity well beyond the end of 2023. Even if there is a recession and orders slow, ASML will still be building, shipping, and collecting revenue from its machines. To that end, ASML is expecting revenue to grow by over 25% in 2023.
