A tech stock? In this economy?

That's right - we found a tech stock that actually looks like a good investment opportunity right now.

You’re probably tired of reading about energy stocks by now. Despite their good dividends and great profits recently, we think it’s time to widen our scope. Recession is the word of the month (and year?) and there are several industries that tend to do well during economic slowdowns, including consumer staples and healthcare.

For this reason, we have chosen one stock from each of those industries, namely General Mills ($GIS) and Sensus Healthcare ($SRTS). Our third stock, Paychex ($PAYX) is a tech company that offers payroll and HR solutions - and you’ll see why we’ve gone for this tech stock at a time when it’s everyone’s favorite thing to hate.

General Mills ($GIS)

This large cap ($45.3bn) company owns several household cereal and bakery brands including Betty Crocker, Cheerios, and Cinnamon Toast Crunch. Our checklist shows 6 Very Good rankings all scoring above 90, with one Very Bad rating.

Why are consumer staples a safe choice during a recession? It’s in the name - staples are things that people cannot live without, things like food and household goods. These companies typically have slow but steady growth, good dividends, and high stability which are all qualities that do well in recessionary environments. General Mills has all three, and is actually ranked #18 for Momentum within S&P 500 stocks. The company beat expectations in its most recent earnings report, and raised its 2022 outlook thanks to the way it continues to deal with the inflationary environment in the US. One way of doing so is by raising prices of their products.

General Mills is currently on an upwards trajectory, up 11.8% YTD and up 7.4% in the last 3 months. With the economy still very much going in a bearish direction, expect the stock to continue its slow and steady increase. The company’s yearly dividend of $2.16 per share is solid too and with earnings growth looking positive, this could increase further.

Sensus Healthcare ($SRTS)

Like last week’s healthcare pick, Sensus Healthcare has been quietly making gains - in fact it is up 23.8% YTD. This is a micro cap ($149.3m) company that specialises in medical devices for non-invasive treatments of oncological and non-oncological skin conditions. Our checklist shows 4 Very Good ratings and 3 Very Bad ratings but don’t let that scare you.

As a much smaller company, the Very Bad ratings are understandable. Low liquidity and stability are just part and parcel of small cap companies, often called the “Small-Firm Effect”. When investing in smaller companies, it’s important to really focus on what makes them special, and not that they might have done 1000% return in 12 months. With Sensus Healthcare, their revenue increased 237% YoY in Q1 of this year, while net income of $16.06m is a huge improvement from a net loss of -$1.12m in Q1 last year.

Despite its small size, the company is in good shape and ranks highly on Quality, and Momentum rankings are high too thanks to the promising outlook.

Paychex ($PAYX)

Tech stocks are nowhere near their all-time highs that many of them achieved during the pandemic years. In fact, most of these pandemic gainers have crashed significantly (looking at you Netflix and Peloton). Investors are understandably wary of putting their money into such a volatile industry, especially when in a bearish economy. So what makes Paychex different? This is a large-cap ($41.5bn) stock that offers payroll and HR solutions. Our checklist shows 5 Very Good ratings and only 2 Very Bad ratings (which, considering the state of the tech industry at the moment, is not bad at all).

Paychex ranks very highly on Momentum and Quality, which tells us it has solid financials behind it and an exciting future ahead. The recent Q4 earnings report showed an 11% increase in revenue and net income and the company expects their margins to increase to an industry-leading 40% for 2022. In a year where many tech stocks revised future earnings downwards, the fact that Paychex are expecting not just higher revenues but higher margins (and 40% margins at that) sounds almost too good to be true.

Interestingly, Stability is also ranked Very Good. Again, for a tech stock this is a surprise to be sure, but a welcome one. Whether the company will meet these expectations remains to be seen, but these estimates should give you a reason to pay attention to the stock for the time being.

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Thanks for reading!

Truman & Miguel 🙌

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Disclaimer: This is not financial advice. Genuine Impact helps you understand the different investment options before you decide for yourself how to invest your money. We do not tell you what to do or which products to buy. We have not assessed your investing knowledge and experience, your financial situation or your investment objectives.

Therefore you should ensure that any investment decisions you make are suitable for your personal circumstances. If you are unsure about the suitability of a particular investment, you should speak to a suitably qualified financial adviser.

Remember that investments can go up and down in value, so you could get back less than you put in.

Rankings accurate as of 13/07/2022