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Recession-Ready Stocks
The word recession has been thrown around a lot lately. We might be in one right now. If not, we could certainly be headed down that path, which means the markets will drop quite a bit more. Even if a recession does not occur, the U.S. economy is clearly in a slowdown with the latest quarter's GDP growth at only 0.6%. It is important to have your portfolio braced for the slowdown. (To learn more, see Recession: What Does It Mean To Investors?)
The Go-To Players
Generally accepted wisdom says that when the economy is headed into a recession, consumer staples companies are the place to be. Consumer staples companies sell everyday products that people will need no matter what, such as diapers and razors. When the economy is in recession people will watch their spending, but they generally do not stop putting diapers on their babies or shaving.
The main players in this arena are Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG). With these two companies the wisdom has been tested, but they could still have trouble if consumers trade down to cheaper generic products. So far, this has not happened.
The stocks dropped a lot in February, along with the market, and now are both flat over the last six months. I focus on the last six months, because this takes us through a lot of rockiness, and it is pretty impressive that these are two of the few companies that have held up.
In late January, as many companies reported heavy weakness, Procter & Gamble reported quarterly earnings per share up 17% to $0.98, on a 9% increase in revenues. Meanwhile, Johnson & Johnson reported EPS up 8.6% to $0.88 with sales increasing 16.6%. These companies are still strong and are currently trading pretty cheap with P&G at around 16.8-times forward earnings estimates and J&J at 13-times. I think just based on valuation J&J is the pick to go with.
The Others
There are smaller companies trying to get on the bandwagon as well. Two pharmacy-based stores, CVS Caremark (NYSE:CVS) and Walgreen (NYSE:WAG), not only sell the products from the big guys, but have their own generic products that sell cheaper, thereby stealing some of the sales from P&G and J&J. I think these products will sell well for CVS and Walgreen's as people lean toward generic brand products to save some coin.
Other retailers that I think may do well in this economy are Costco Wholesale (Nasdaq:COST) and BJ's Wholesale (NYSE:BJ), which both sell products in bulk wholesale prices to consumers. (For more on the sales increase at both wholesalers, check out Consumers Return In Bulk To Wholesalers.)
Apart from all of these cheap and necessary products, I have a unique pick that I think can do quite well in a recession: eBay (Nasdaq:EBAY). The company saw net income pop 53% to $530.9 million from $346.5 million for its fourth quarter of 2007. I think eBay will be able to take advantage of a rush of people trying to get a little side cash as we navigate through a rough economy.
The Bottom Line
Whether we're headed for recession or not, there is a definite slowdown in the U.S. economy. While the markets have been choppy there are always possibilities to take advantage of. I think consumer staples and the pharmacy-based stores will continue to do well. And eBay will has a unique advantage as people try to raise some extra cash.
Fore related reading, check out Bear-Proof Your Retirement Portfolio.
The Go-To Players
Generally accepted wisdom says that when the economy is headed into a recession, consumer staples companies are the place to be. Consumer staples companies sell everyday products that people will need no matter what, such as diapers and razors. When the economy is in recession people will watch their spending, but they generally do not stop putting diapers on their babies or shaving.
The main players in this arena are Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG). With these two companies the wisdom has been tested, but they could still have trouble if consumers trade down to cheaper generic products. So far, this has not happened.
The stocks dropped a lot in February, along with the market, and now are both flat over the last six months. I focus on the last six months, because this takes us through a lot of rockiness, and it is pretty impressive that these are two of the few companies that have held up.
The Others
There are smaller companies trying to get on the bandwagon as well. Two pharmacy-based stores, CVS Caremark (NYSE:CVS) and Walgreen (NYSE:WAG), not only sell the products from the big guys, but have their own generic products that sell cheaper, thereby stealing some of the sales from P&G and J&J. I think these products will sell well for CVS and Walgreen's as people lean toward generic brand products to save some coin.
Other retailers that I think may do well in this economy are Costco Wholesale (Nasdaq:COST) and BJ's Wholesale (NYSE:BJ), which both sell products in bulk wholesale prices to consumers. (For more on the sales increase at both wholesalers, check out Consumers Return In Bulk To Wholesalers.)
Apart from all of these cheap and necessary products, I have a unique pick that I think can do quite well in a recession: eBay (Nasdaq:EBAY). The company saw net income pop 53% to $530.9 million from $346.5 million for its fourth quarter of 2007. I think eBay will be able to take advantage of a rush of people trying to get a little side cash as we navigate through a rough economy.
The Bottom Line
Whether we're headed for recession or not, there is a definite slowdown in the U.S. economy. While the markets have been choppy there are always possibilities to take advantage of. I think consumer staples and the pharmacy-based stores will continue to do well. And eBay will has a unique advantage as people try to raise some extra cash.
Fore related reading, check out Bear-Proof Your Retirement Portfolio.
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