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Thu. Dec. 11, 2008

Five Stocks For Any Economic Situation *

Wading through the mainstream financial news, two story lines are forming regarding the recent financial turmoil in the markets. The articles are trying to predict the near-term future of the stock market and cover virtually every possible outcome, with most articles falling at the two extremes – Boom or Bust. Below are some thoughts from these two camps:

The Bust Case
Paul Krugman, a U.S. economist and winner of this year’s Nobel economics prize, said the world could face a Japan-style, decade-long slump in the stock market. He called called on policy makers to spend liberally to cushion a withering global downturn. He was quoted as saying:

“A scenario I fear is that we’ll see, for the whole world, an equivalent of Japan’s lost decade, the 1990s—that we’ll see a world of zero interest rates, deflation, no sign of recovery, and it will just go on for a very extended period, and that’s unfortunately very easy to see happen. We can easily be talking about a world economy that is depressed until 2011 and maybe beyond.”

Krugman added that in his worst case scenario there would also be a series of extremely serious crises in particular countries that are in big trouble.

The Boom Case
Birinyi Associates said that if some market watchers are right and the bear market is over, this could be the strongest start to a bull run in over 75 years. Looking at the S&P 500 and assuming that 750 marked the bottom, Birinyi argues the index has shown its strongest advance for any 11-day start to a bull market since 1932.

According to Jeffery Rubin, an analyst at Birinyi Associates, the markets having turned bullish is beyond question. His firm uses factors like money flows to gauge market psychology, to discover what kind of bull market this may be.

Birinyi Associates, headed by founder Laszlo Birinyi, has been just one voice in a recent chorus of fund managers and market participants who are calling investors back to stocks. Bill Miller of Legg Mason and Steve Leuthold of Leuthold Group are two others.

What To Do
First, we should stop trying to predict the future. It is obvious that very smart and credible people have vastly different opinions on where we are headed. Here are five stocks for consideration that have done well during booms and busts:

Kimberly-Clark Corporation (KMB): This leading consumer products company’s global tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark. During a bust or a boom, people still need KMB’s products and most people are very loyal to their brand.
Buy Below Price: $52.87

PepsiCo, Inc. (PEP): This company is a major international producer of branded beverage and snack food products. During a bust, most people don’t give up sodas and snack food, during a boom PEP moves into new markets.
Buy Below Price: $70.61

Integrys Energy Group, Inc. (TEG): This utility holding company serves about 485,000 regulated electric and 1,674,000 regulated gas customers. The company also operates an unregulated energy supply and services business. During a bust or boom, people don’t stop using electricity or natural gas.
Buy Below Price: $49.95

United Technologies Corp (UTX): This aerospace-industrial conglomerate’s portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products. Large backlogs for commercial aircraft and strong demand for military helicopters will keep UTX busy during a bust and a boom.
Buy Below Price: $56.27

Wal-Mart Stores, Inc. (WMT): The largest retailer in North America, operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets. During busts, the company is well positioned to gain market share, and during booms WMT will continue its global expansion.
Buy Below Price: $62.40

Buying good, solid dividend companies is a time proven means of investing in the good and bad times. They produce a stable stream of dividend income and help cushion the market’s volatility. While everyone else is panicked about their portfolio’s decline, dividend investors see a bust as a buying opportunity that will eventually turn into a boom.

Full Disclosure: Long KMB, PEP, TEG, UTX, WMT

References:
- Now entering bull market? Some analysts think so
- Nobel laureate Krugman: Lost decade possible


5 Responses to “Five Stocks For Any Economic Situation *”

  1. STOCKMANMARC says:

    Interesting article about the boom & bust case, sort of like is the glass half empty or half full-you choose!

    ..and poor Bill Miller, heres a guy that had an excellent track record, what happened?

    STOCKMANMARC

  2. bill says:

    Excellent List. I would add Johnson & Johnson to that list also solid company, good management, its buying up small companies that undervalued.

  3. Dividends4Life says:

    STOCKMANMARC: I suspecy Bill Miller’s call for a bottom is an effort to get people back into the market. It would have been very hard to keep his streak going.

    Bill: JNJ would fit very well here. It is one that I am actively buying.

    Best Wishes,
    D4L

  4. the intelligent investor says:

    I like PEP at the current discount.

    What about McDonalds? They are posting 7-8% year-over-year growth in stores open more then a year throughout this bear market cycle.

    It is hard to accept the boom case when 3 month treasuries are selling at about 0%. But when the trillions of dollars on the sidelines returns to the equity markets it’ll be a hell of a ride!

  5. Dividends4Life says:

    The Intelligent Investor: I like and own MCD, but they are trading at a premium higher than I am willing to pay at this time.

    Best Wishes,
    D4L