The million-dollar question investors are trying to figure out today is whether the market is headed for the "double dip", a term used to describe an economy falling back into a recession after having recently recovered from one. Indeed, the answer is important because a recession would most certainly cause stock prices to decline. But the reality is that no one can predict the future with 100% accuracy. Thankfully, you don't have to; just invest in companies whose businesses will be little impacted by an economic downturn. (To help you identify those companies, read 4 Characteristics Of Recession-Proof Companies.)
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The Real Thing
Trading at 12.3 times earnings and yielding 2.8%, Coca-Cola (NYSE:KO) may be the most recession-proof business in the world. People all over the world have an affinity to Coke that is irreplaceable. It's also a relatively minor purchase for consumers. And the company is experiencing significant growth outside the U.S. The treat of generic substitutes is virtually non-existent; Coke is trusted by consumers who aren't interested in saving 25 cents by going generic.
Coke's main competitor, Pepsico (NYSE:PEP), also looks well-suited to weather any economic storm for reasons similar to Coke. Those that don't drink Coke usually drink Pepsi. Shares in PEP now trade for about $65, off from $72, and yield 3.3%. You can be as sure as night follows day that Pepsico's dividend is safe.
These Businesses Like Recession
All right, so maybe no businesses really like a recession, but it sure seems that some of them benefit from it. As times get tougher, the appeal of Wal-Mart's (NYSE:WMT) low prices grows upon consumers. Wal-Mart hasn't been an exciting business to own in terms of shareholder returns, but the world's biggest retailer is trading at 12 times earnings and yielding 2.5%. In a recessionary environment, Wal-Mart shares will likely do a better job of retaining their value relative to other retailers.
Discount fashion retailer TJX (NYSE:TJX) offers the high-end name brand fashions at highly discounted prices. More frugal customers will gravitate toward T.J.Maxx for the savings. The stores carry all the high-end brand merchandise that customers will find at places like Nordstrom or Macy's. TJX has been a consistently profitable company over many years. The fact that shares still trade near a 52-week high indicates that investors are confident in the company's profitability going forward. Despite the price, shares still trade at 13.5 times forward earnings.
Regardless of day-to-day stock price swings, not all businesses suffer recession-like setbacks during a recession. While it doesn't seem like a double dip is on the horizon for the U.S. economy, some businesses will likely keep moving ahead even in the face of a recession. (For help in protecting your portfolio, see Tips For Recession-Proofing Your Portfolio.)
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