Smart investors realize the need to monitor investments and change with the economic times. In a technology boom period, investors load up on stocks capitalizing on new electronic products and technological innovations. Growth stocks do well in booming economies. When recession begins to take its toll on the economy, a different investment strategy is necessary.
The Recession Alternative
Most investment portfolios have some large- and mid-cap, blue chip domestic and foreign stocks in their accounts at all times. These same companies are excellent investment choices during lean economic times. Medium-sized and large companies with a history of solid sales and earnings, cash reserves and positive cash flow have a good chance of withstanding slow periods. Most of these companies also offer a dividend. Recessions take their toll on small growth companies that may not have the financial strength to survive a string of lean years. Large and midsized companies offer investors some degree of safety, reduced portfolio volatility and income in the form of dividends in unsteady economic times.
Industries that Survive Recessions
Investors should narrow their choice of recession-proof stocks to industries that are not extremely sensitive to economic ups and downs. For example, people always buy food and staples such as toilet paper and soap. They can put off buying expensive items like cars, jewelry and furniture. Food manufacturers will not be unscathed during recessions. Shoppers may bypass more costly gourmet and specialty products in favor of cheaper fare, but these companies will not be hurt as much as those relying on impulse and discretionary dollars.
Companies attracting dollar-conscious shoppers also do well during recessions, such as dollar stores and discount chains. Pharmaceutical companies continue to sell drugs and medical supplies. Alcohol and beer manufacturers are among the industries that continue to do well in weak periods. A number of industries that prosper many investors may shun: defense and weapons, companies in the sex industry and cigarette companies.
Investment Ideas Offered by Professionals
The Motley Fool recommended several domestic and Canadian stocks in 2009 to help investors survive the recession and minimize losses if they didn't make huge gains. The companies included two oil and gas exploration companies, Southwestern Energy and Range Resources, the Flowers Foods company and Goldcorp, which invests in gold. Two companies in the educational field were on the list: ITT Educational Services and Strayer Education. Apple; the Priceline website; Gilead Sciences, a biotech firm; and the software company McAfee completed the Motley Fool list. Motley Fool predicted these mid-cap companies would be among the first to recover from recession.
Additional Investment Suggestions
Louis Navallier, an investment guru and newsletter writer, suggests McDonald's and Wal-Mart as good recession-era investments. "Kiplinger" magazine considers health-care firms Abbott Laboratories, Teva Pharmaceuticals, the CVS Caremark drugstore chain and medical supply firm Medtronic good stock choices in slower economic cycles. The magazine's additional suggestions included food companies Kraft and Nestlé and technology companies Google, Apple and Broadcom.
- "Wealth Daily"; Best Stocks During a Recession; Ian Cooper; Jan. 22, 2008
- Motley Fool; Top 10 Recession Stocks; Ilan Moscovitz; Feb. 9, 2009
- Navellier Growth; Best Stocks to Buy and Sell in a Recession; Louis Navallier; March 12, 2009
- "Kiplinger": Stocks to Buy in a Recession; Andrew Tanzer; Dec. 8, 2008
- Comstock Images/Comstock/Getty Images