2 recession-proof stocks for 2017

Pets At Home storefront

As we creep towards 2017 and our eventual exit from the EU, it's likely that more investors will look towards companies that offer services or products that we'll buy whatever the weather (or economic climate). Utilities and consumer staples will inevitably garner the most attention and, if history is anything to go by, justifiably so. Nevertheless, there's one niche market out there that I think offers a perfect blend of defensive qualities and dynamic growth, namely that which focuses on the UK's love of pets. Let's look at two examples of companies operating in this area, one of which reported to the market earlier today.

Resilient market

Despite the substantial drop in its share price this morning (down almost 8%), £1.15bn retailer Pets At Home's (LSE: PETS) interim figures aren't bad at all. Over the last six months, like-for-like revenue across the group was up by 2.5% with food sales rising by 3.7% and accessories by 5.9%. Even more positive was the 47.6% growth in its veterinary business from £41.9m to £61.9m. 

Elsewhere, the Wilmslow-based company reported that investment in its online offering was "delivering results" and that its space rollout remains on track with eight new superstores, 17 vet practices and 18 grooming salons opening over the past year. For those who like to focus on fundamentals, Pets At Home also reported an 11.5% rise in free cashflow to £34.4m and a reduction in leverage from 1.5 times to 1.3 times. This last detail is noteworthy as it shows that the company is continuing to focus on steadily reducing its debt pile, no bad thing in an uncertain economic climate. While reflecting that the trading environment wasn't easy, CEO Ian Kellett remarked that the company was "confident in the long-term outlook" and the "developing potential" of the aforementioned Services business.

On a forecast price-to-earnings (P/E) ratio of 15, I'd say that shares in Pets in Home are reasonably valued and, thanks to today's 25% dividend hike, should now feature prominently on the radars of those who invest for income.

Small-cap star 

For those who prefer smaller companies, an alternative to Pets At Home might be CVS Group(LSE: CVSG). The £539m cap is the largest veterinary group in the UK and, with good reason, has attracted quite a following among those who hunt for shares at the lower end of the market spectrum. Over the last five years, its share price has rocketed 1,000% thanks to consistent growth in revenue and net profits. Only today, it's up 12.5%.

Can this fantastic run of form continue? Quite possibly. A rise of almost 170% in earnings per share has been pencilled-in for 2017. Moreover, the company's recent acquisition of a small animal practice based in the east of the Netherlands is intended to be the first step in the development of a similar business to that operating in the UK. One thing's for sure, CVS isn't standing still.

Any downsides? Well, on a forecast price-to-earnings (P/E) ratio of 24 for 2017, shares in a CVS are rather expensive and unlikely to be of interest to those who scour the market for value. Nevertheless, those with stronger appetites for risk and longer investing horizons may be tempted and given the company's strong pipeline of acquisitions, I wouldn't blame them.

Collectively, I think that Pets at Home and CVS offer investors an enticing alternative to utility and consumer staple stocks during times of economic uncertainty.  

If you're worried about what our impending departure from the EU may mean for your investments, I strongly encourage you to take the time to read a special report from the Motley Fool. This handy, 5-step survival guide should be all you need to negotiate the choppy waters ahead.  

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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