Think we're headed back into a recession? A lot of investors do. They are buying the most defensive, recession-proof names they can get their hands on. That means consumer staples names Colgate Palmolive (NYSE:CL) and Coca-Cola (NYSE:KO) are quickly coming back into favor; both are knocking on the door of new highs. Makes sense, as it's unlikely consumers will give up the most basic daily things - no matter how deep the economy sinks. (For more, check out Tips For Recession-Proofing Your Portfolio.)
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There's another group of stocks that do just as well in a recessionary period though, and these corporations don't make anything you can eat or clean yourself with. In fact, these companies don't even target consumers at all - at least not individual consumers.
In the same sense that the average consumer just isn't going to give up food or hygiene no matter how tough times get, some corporations can't give up something they've grown quite accustomed to as well - their technology. Specifically, a whole host of enterprises are quite married to their software-as-a-service and database management service, so much so that they couldn't get rid of it if they wanted to.
This is a unique business. Unlike auto manufacturing or retailing, technology service providers are built from the ground up not to generate one-time sales, but rather generate recurring revenue on a monthly and quarterly basis.
Oracle Sees Solid Growth
It's a model that's worked well for the likes of Oracle (Nasdaq:ORCL). While the company has seen its ups and downs on the personnel front (the Mark Hurd, HP saga), Oracle made more for shareholders in 2008 than it did in 2007, and made more in 2009 than it did in 2008. In fact, Oracle's earnings have increased solidly every year since 2005.
How does that happen when every other industry is still struggling to push itself up off the mat? It's the recurring-revenue nature of the database and software management business. Once Oracle integrates itself into the daily routine of its customers, it's entrenched.
The Niche Player
Where Oracle paints a broad brush stroke in the industry, some of the more focused names perform even better within a particular niche.
Take Cerner Corporation (Nasdaq:CERN) for instance. This supplier of healthcare information technology solutions has also grown its top and bottom line every year since 2006, sailing right through the 2008 recession as if it wasn't happening. Lasts year's revenue of $1.8 billion led to a bottom line of $237 million. Both were records. Although shares are priced at a hefty 37.4 times trailing earnings, the consistent fiscal progress is undeniable.
Right Idea, Wrong Stocks
While Oracle and Cerner are fine stocks in their own way, as is so often the case, the highest-profile name in the group isn't necessarily the best stock in that group.
Among the healthcare technology names, Quality Systems (Nasdaq:QSII) may be the better choice. With shares priced at 28.11 times trailing earnings, it may not going to win any value awards. After four straight quarters of earnings increases though - not to mention five consecutive years of higher per-share profits (through 2010) - it's tough to deny it is a growth juggernaut.
In the same broad vein as Oracle, smaller New York-based CA Inc. (NYSE:CA) may be a wiser choice. Like Quality Systems as well as Oracle, CA has created stunningly reliable growth regardless of the environment. For every quarter over the past two years now, the company has posted high year over year quarterly profits. And, it also boasts five straight years of improved profits, as if the recession wasn't even happening. (To help identify which stocks to add to your portfolio, read 4 Characteristics Of Recession-Proof Companies.)
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