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Answer:
Dear BuyandHolder,
Your question reflects the thoughts of many BuyandHolders and is most timely, especially since last week “an authority” announced that we are officially in a recession –- as if we needed to be told as much!
The “authority” was the National Bureau of Economic Research and its Business Cycle Dating Committee. The committee of this nonprofit organization went even further to say the U.S. has been in a recession since a year ago -– that is, since December 2007. That same month is being credited as marking the end of the prior cycle of economic expansion which began in November 2001.
The National Bureau of Economic Research and others define a recession as a significant decline in widespread economic activity that lasts more than a few months. The decline can be seen in employment, income, production and other economic figures.
INFO: If you would like to read the full National Bureau of Economic Research report, you’ll find it at: www.nber.org. (The link is prominently displayed in several places on the organization’s home page.)
What You Can Do
Fourth quarter results and annual figures will be pouring in from corporations between now and the early days of January. You’d be smart to get out your old fashioned notebook and pen and make a list of those whose performance figures are positive.
As you know, we cannot recommend specific stocks in this column, but we can point you in the right direction...and companies with favorable earnings lie within that direction.
The primary key factor in selecting stocks during economic down times is “necessity.” Companies providing products and even services that we need for survival tend to be recession-resistant.
The second key factor is “indulgence.” Ongoing indulgences support the so-called “sin” companies –- companies that provide things we don’t want to give up even when pressed for cash. These include candy (especially chocolate), ice cream, liquor, cigarettes, cigars and, to some extent, gambling.
Industries To Consider
Among the industries that are likely to ride out the financial storm are, in alphabetical order:
Banks
Beverages (including alcohol)
Electricity
Fast food outlets
Food (retail, distribution, manufacturers)
Gambling
Health care (prescription drugs, over-the-counter products, medical devices & equipment)
Internet search firms
Oil
Retailers (those offering discount prices & bargains)
Telephone & communication services
Tobacco
Toys
Water
A word of caution... Not all companies within these sectors are good buys. Only those with low or no debt, strong balance sheets, solid foreign sales, in some cases, such as health care, a plethora of new products.
General Industry Comments To Consider
Regardless of the economy, we need to eat, cloth our families and undergo serious medical procedures or therapy. We don’t, however, need to dine out at expensive restaurants, get a full face lift or take a cruise around the world.
We will continue to take showers and use water, turn on the lights and electrical appliance, drive our cars (albeit less than in the past) and make phone calls.
We will tend to spend more time at home in the evenings and on weekends, logging onto the Internet to search for bargains or to chat. In lieu of going to a theater, we’re more likely to watch TV as well as new and old movies.
We may not buy our kids every toy they ask for (as in the past), but we will make certain they have presents to open at holiday time, on their birthdays, for graduation and on other special occasions.
Regarding the inclusion of banks on the above list -- many, of course have been hard hit. However, if you are inclined to consider a bank for purchase, you should consider researching some of the smaller banks and in particular, those that did not participate (or participated very little) in subprime mortgages.
Finally, though Americans know they should cut back on ice cream sundaes with chocolate sauce, smoking, drinking and playing the slot machines, it’s unlikely they will!
Good luck!
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