Strategies for "Tough Times" - Investment Ideas

By Zacks | May 04, 2012 AAA

tough times

Strategies for Tough
Times

I don't think there is an expert out there who can deny that
the global economic situation is tenuous at best.  Depending on whom you ask, the average
consumers' fiscal health outlook for the next 12 months may range from bleak to
perhaps hopeful.  You would be hard
pressed to find an informed economist, investor, professional or politian that sees
an explosion of growth in the next year without some struggle.

By the numbers, at least here in the U.S., the BLS
employment reports have been showing a decline in the number of jobs added over
the past 3 months.  Last year, those same
months of the year actually saw a systematic increase in jobs with May being
the height of jobs growth and then falling off a cliff, eventually sending the
S&P 500 down 300 points or almost 30% by the lows in August.  Today's abysmal BLS report punctuates this
trend of decline and if May was the best month in 2011, I am scared to see what
June 2012 holds. 

While manufacturing PMI came in higher than expectations
this week, the average readings this year is still lower than 2004-2007 and
2009-2011.  Non-manufacturing PMI looks
the same.

The housing market continues to struggle in both price and
the rate of sales. These and other indicators here and abroad commonly point to
a mixed outlook and anemic recovery at best. 

Even with all this, the major indices are close to 4 year
highs. Is the party over?  If so, what
should you be doing in your portfolio to prepare.

Our New Problem
History has shown that in tough times, you can move money
into to consumer staple stocks, bonds, money markets, etc to decrease your
portfolio's volatility and preserve capital.

While those suggestions are still viable, there are several
potential issues.  Bonds (U.S. Treasuries)
are probably the worst place to be now. 
The FED (along with the masses) have been scooping up these notes since
the crisis, driving prices up and yields down. 
If things turn out to be OK and the FED takes no further action or
even raises rates, bond prices may tumble and holders of bonds will then have a
poor yield on a bond they overpaid for and may incur principal losses as well.

If inflation continues to tick up, money market rates may do
the same, but being that the national average is less than 0.5%, the interest
rate is far short of the target of 2% inflation. This means your principal,
while safe, may have inflation risk.

If things do get better, consumer staple stocks may not give
you the capital appreciation you desire as investors flock to the sexier
growth stocks out there.  While consumer
staples or traditional dividend earners are not a bad place to look, but let's
examine three stocks in three sectors that may be alternatives for the basic
staple companies like Johnson and Johnson (JNJ) or Clorox (CLX).

Guns
When Americans get nervous about the economy (and stability)
of global economies, we tend to change our spending habits.  Recently those habits have included buying
firearms.  Smith & Wesson, Sturm
Ruger and others have seen demand growing almost constantly since 2008, sparked
by economic uncertainty and worries that Barack Obama might seek to reduce gun
rights in America. 

Sturm, Ruger & Co., Inc. opened for business back in
1949.   RGR is principally engaged in the design, manufacture, and
sale of firearms and precision metal investment castings. They are the only
U.S. firearms manufacturer which offers products in all four industry
categories.

Last month RGR announced that it had received orders for
more than 1 million units in the first quarter alone; the company noted that
despite efforts to increase production rates, the incoming order rate exceeds
our capacity to rapidly fulfill these orders.  What's more is that RGR still remains relatively valuable at
20 times forward earnings.  While this
number may seem relatively elevated, consider the fact that RGR has beat
analyst estimates 7 quarters in a row and has averaged an almost 27% postive earnings surprise over the past year.

Industry experts see the firearms growth continuing, quality
manufacturers like RGR will most likely continue to benefit.   RGR is a Zacks Rank 1 Strong Buy and
currently yields a 1.55% dividend.

Beer
At a recent investor conference, I was reminded that beer
has shape world cultures throughout the ages. 
Beer is the 3rd most consumed beverage in the world, next to
water and tea.  Its roots can be traced
back to 9500 BC&

In tough times, many turn to beer to reduce stress and bring
a modicum of relief to a tough day. 
Arguably, beer also serves as a social bond for friends and community
members to network and get through those hurdles.   At
home and in pubs around the world, beer brings society together and maybe makes
things just a little bit better.   

In good times, people still enjoy a good brew, but perhaps
with different motivation for doing so. 
Maybe with a couple more bucks in your pocket, you may even go for that
premium, hand-crafted malted brew you have been curious about.  Like it or not beer is here to stay.

A colleague of mine recently wrote about Boston Beer (SAM), which is a
Zacks Rank 1 Strong Buy and has enjoyed some serious momentum over the past
year. 

Also check out an article I wrote about Anheuser-Busch
InBev (BUD) back in late March.  They
are currently a Zacks Rank 2 Buy. 

More Alternatives
Think outside the box when you are looking for defensive
stocks.  Use your logic and experience to
target companies that will benefit in good times, but also not do so poorly in
bad times.  The Stay-cation is a
popular term coined during the last recession.

With limited funds, poor job prospects and high petrol prices,
many consumers either went the cinema which helped companies like Regal Cinema
(RGC)
or they watched at home, which was beneficial to companies like Coinstar/Redbox
(CSTR).

Hopefully this got you thinking about alternatives for a
shaky economy.  Look at your habits, what do you do differently at home when times
get tough? 

 

 
ANHEUSER-BU ADR (BUD): Free Stock Analysis Report
 
ANHEUSER-BU ADR (BUD): Free Stock Analysis Report
 
ANHEUSER-BU ADR (BUD): Free Stock Analysis Report
 
ANHEUSER-BU ADR (BUD): Free Stock Analysis Report
 
REGAL ENTMNT GP (RGC): Free Stock Analysis Report
 
REGAL ENTMNT GP (RGC): Free Stock Analysis Report
 
REGAL ENTMNT GP (RGC): Free Stock Analysis Report
 
REGAL ENTMNT GP (RGC): Free Stock Analysis Report
 
STURM RUGER&CO (RGR): Free Stock Analysis Report
 
STURM RUGER&CO (RGR): Free Stock Analysis Report
 
STURM RUGER&CO (RGR): Free Stock Analysis Report
 
STURM RUGER&CO (RGR): Free Stock Analysis Report
 
BOSTON BEER INC (SAM): Free Stock Analysis Report
 
BOSTON BEER INC (SAM): Free Stock Analysis Report
 
BOSTON BEER INC (SAM): Free Stock Analysis Report
 
BOSTON BEER INC (SAM): Free Stock Analysis Report
 
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