According to just about everyone, Australia and indeed the world economy is going into recession. While there may be a few factors contributing to the global recession, it is clear that the coronavirus pandemic is the primary cause.

While a recession is not good for most businesses, there are some companies that may fare well and even improve their earnings during a time of economic downturn. This is because their business model allows them to benefit from some of the economic phenomenon occurring around them. For example, during a recession an increase in people not paying their bills can be a boon for debt collection companies.

If the recession is prolonged, investors may get some security from holding assets that can thrive in a market downturn while other companies suffer.

Here are 3 ASX companies that are counter-cyclical and could do very well through the pending recession.

Credit Corp Group Limited (ASX: CCP)

Credit Corp buys and collects non-performing debts owed by consumers in both Australia and the US. It is the largest debt purchase and collection company in Australia and has been listed on the ASX since 2000.

The company has announced a capital raising of $150 million in order to take advantage of increased supply of the debts which it purchases and collects, brought about by the coronavirus. It has also announced that its balance sheet will remain secure in a variety of scenarios.

Credit Corp has cut costs significantly since the onset of the COVID-19 crisis, and its CEO and directors fees have been reduced by 50%. This helps in positioning it well to take advantage of the current situation. The increases in provisions for bad debts recently announced by National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) will provide ample business for Credit Corp as it picks up the scraps of Australia’s bad debts.

As part of its capital raising, Credit Corp also announced its interest in purchasing competitors’ books. This could provide an opportunity for a significant boost to earnings as it acquires cheap assets brought on by the COVID-19 recession. Credit Corp could also consider expanding into new markets as it finds itself facing a recession with significant cash on hand.

Cash Converters International Ltd (ASX: CCV)

Cash Converters is an international personal finance and pawnbroking business, mainly operating in Australia with franchises around the world. The business has a loan book of $224.2 million and achieved $42.4 million in retail sales in the first half of the 2020 financial year.

The types of personal loans that Cash Converters specialises in, known as payday loans, are likely to be in high demand during a recession as people find themselves short on cash. Payday loans are short term loans of as little as a few weeks, usually with a high interest rate. This type of lending has proven highly profitable for Cash Converters over many years. Additionally, during times of hardship people are likely to hunt for bargains rather than pay full price for retail goods. While this may be bad news for retailers like Harvey Norman Holdings Limited (ASX: HVN), it could provide a boost to Cash Converters.

Cash Converters has remained quiet about the effects of the coronavirus lockdowns on its business. However, as last reported, 53.9% of its loans originated online. This means that it is likely that the company has seen continued demand for loans during lockdowns.

While the recession could mean an increase in defaults on existing loans, people are likely to need additional cash while economic times are tough. In the US for example, a report by the Chicago Federal Reserve observed a sharp increase in payday loans during the GFC. If there is a sharp increase in demand for new payday loans in Australia through the pending recession, Cash Converters is likely to have a highly profitable few years ahead.

Betashares U.S Strong Bear Hedge Fund ETF (ASX: BBUS)

This exchange-traded fund (ETF) is an interesting one. It aims to provide returns that are negatively correlated to the US S&P 500. This means that as the US enters a bear market, returns will be positive. When the US starts to recover and the S&P 500 rises, returns will be negative. In this way, this ETF is like betting against the S&P 500 index of the 500 biggest US companies.

During a recession this could be an effective strategy, particularly if share prices drop further. In the long term, however, this is probably not a great strategy and holders will need to consider when a recovery in the S&P 500 is coming to close out their position. Historically, the S&P 500 index has eventually recovered through difficult times.

During March this year when world financial markets were crashing, this ETF rose from a low of $2.61 to $6.80. That’s a return of 160.53%. It currently sits back at $3.19 due to the recovery in share prices. However, this is one to hold if you believe that this will be a prolonged bear market with further dips in financial markets.

More reading

• Here are all the ASX 200 companies that have announced capital raisings so far in 2020
• Market close: ASX 200 jumps over 2%
• The new hunting ground for ASX value buys isn’t where you’d expect
• ASX 200 up 1.2%: ANZ defers its dividend and Woolworths reports sales surge
• Why Credit Corp, IOOF, Mesoblast, & Oil Search are surging higher

Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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One of the hardest-hit sectors on the ASX amid COVID-19 is aviation shares. Australia is carefully opening up the economy. However, the rest of the world is still in crisis. 

Bleak outlook for ASX aviation shares

One high profile company to be impacted is Qantas Airways Limited (ASX: QAN). Qantas has seen a dispute with Perth Airport erupt at the same time its flights have dropped to near zero. This has resulted in Qantas receiving termination notices. Even without this conflict, the airline faces near-term uncertainty. Nevertheless, if the terminations are carried out, the entire airline industry could alter. 

Sydney Airport Holdings Pty Ltd (ASX: SYD) is another high-profile casualty. This airport has seen domestic passengers reduce by 97.4%, while international passengers dropped by 96.1% in the first 16 days of April. Domestic flights and trans-Tasman flights to New Zealand appear possible in the near term. This will provide some income for Sydney Airport. However, it is still a long way from its performance in January.

Air New Zealand Limited (ASX: AIZ) has seen its share price fall by 59% year-to-date. Air New Zealand is a far smaller company than Qantas and Sydney Airport by market capitalisation. As such, it requires less volume to regain momentum. However, the limited flights across the Tasman sea or domestically within New Zealand are still a long way from its usual international traffic. 

The safe haven

Alliance Aviation Services Ltd (ASX: AQZ) is a small-cap ASX aviation share. It operates a number of “wet lease” services for Virgin Australia Holdings Limited (ASX: VAH) which has impacted its revenues. However, the core of its work comes from fly-in fly-out operations for the nation’s resources sectors. All of these flights are continuing.

Mining and oil and gas companies are the hardened core of our economy. They are responsible for our recent trade surplus and are essential to our short-term survival. Throughout Australia, these companies have made significant changes to adapt to COVID-19. Social distancing within aircraft means reduced passengers per flight and is likely to see an increase in overall flights.

On 1 May, Alliance announced a new 10-year airline services contract with South32 Ltd (ASX: S32) for the Cannington and Groote Eylandt (GEMCO) mine sites, further cementing its reputation as a provider of choice for fly-in fly-out operations. In fact, Alliance does not even operate from Sydney airport, preferring to service regional centres and smaller airports. 

I believe that no matter what happens from this point forward, there is little chance Alliance will see any reduction in its fly-in fly-out operations.

Foolish takeaway

While there is a reduction in wet lease flights on behalf of Virgin Airlines, Alliance has been able to maintain its momentum through its focus on fly-in fly-out operations. In fact, it is likely to see flights increase to cater for social distancing in distance commuting. As intra-state travel begins to open up, I believe Alliance will see its revenues come back before the large players in the field.

If the feud between Perth Airport and Qantas escalates further, it may gain further market share.

More reading

• These ASX 200 shares saw the biggest falls last week
• ASX 200 Weekly Wrap: New ASX bull run continues
• 3 ASX 200 shares to buy before the market rebounds
• 3 ASX dividend shares for income investors to buy next week
• These were the worst performing ASX 200 shares last week

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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