On the flip side, what type of stock should investors be avoiding in a recessionary economy?Įarly: My Foolish colleague Prashant Rathore notes that tech was a lousy performer in the last go-'round, when companies such as Yahoo! (Nasdaq: YHOO) and Oracle (Nasdaq: ORCL) saw double-digit declines. Of course, my prognostication powers could be completely wrong. If so, that suggests that the bear market will end in the May-June time frame, and the industries I mentioned will start to underperform. If the recession lasts the typical year, then the market will start anticipating a recovery six months in. For example, since the market stopped going up in mid-July, that suggests that the recession started around January. This is sort of a trick question, though, because the stock market has a mystical way of anticipating recessions six months in advance (even those that don't actually occur!), so by the time a recession has actually started, at least half of the outperformance from these recession-resistant industry groups has already occurred. And remember that just because there is a recession in the U.S., that doesn't mean that there are recessions overseas, so some international exposure through foreign stocks and U.S. Selected examples from those industries include Verizon Communications (NYSE: VZ), Procter & Gamble (NYSE: PG), and Walgreen (NYSE: WAG). Specific industries that qualify include utilities (local telephone, electric, natural gas), consumer staples (food, beverages, tobacco, small-ticket household goods like soap, toothpaste, and bathroom tissue), health care (retail drug stores and pharmaceuticals), and companies dependent on countercyclical government spending (defense, public infrastructure). Now that's taking care of your shareholders.įink: Generally, large-cap dividend-paying stocks that cater to consumers' basic needs outperform in recessions. Or there are smaller companies, like Genuine Parts (NYSE: GPC), an auto-parts wholesaler that has increased its dividend for 51 consecutive years.
It's the world's second-largest food manufacturer, it owns some of the best-known brands - Oscar Mayer and Oreo cookies, to name a couple - and it's re-energizing its operations. And of course, we look for companies that pay a nice dividend and are run by managers eager to increase it - a company like Kraft (NYSE: KFT), for example. And traditional havens like energy and health care make sense - Petrobras (NYSE: PBR) comes to mind.Ĭross: James and I try to find best-of-breed companies with unique competitive advantages that can grow through good times and bad. My very favorite way to diversify is to find solid, established companies in growing economies. If we are in or are headed for a recession, describe the type of stock investors should be looking for.Įarly: Don't be a chicken when it comes to investing internationally. You read that right: Recessions and bear markets can actually increase your wealth over the long term if you keep buying stocks and reinvesting dividends during them.Ģ. In fact, recessions create rare opportunities to buy stocks of high-quality, blue-chip companies at bargain-basement prices. Jim Fink, Income Investor analyst: The average recession lasts only about a year and is followed by an average economic expansion of four and a half years, so the long-term investor should not be concerned. Rather, use price decreases to invest in the country's, and even the world's, best companies selling at cheap prices to their long-term value. So it's important that investors don't panic and sell their entire portfolios during slow economic times. But look, recessions on average last less than a year they don't come around too frequently and over time, stocks go up two out of three years.
I don't know if we are, but when Warren Buffett says we're in a recession from what he's hearing from his 70-some business managers, that's a pretty good indication. Andy Cross, co-advisor, Income Investor: How's the old saying go - "economists have predicted 20 of the past two recessions"? The media seems obsessed with calling a recession.
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