Posted on Monday, December 10th, 2012 | In Market Commentary
No business is recession-proof, but there are lots that are recession-resistant. In terms of your stock market portfolio strategy, it certainly pays to have a few names that fit into the recession-resistant category. The U.S. economy typically experiences a recession about once every five or six years.
You might consider a utility company or possibly even a brewery as being a recession-resistant business. The Southern Company (NYSE/SO) stands out in the utility sector as having a great long-term track record on the stock market. For sure, the company isn’t growing as fast as an Internet start-up, but what it does offer is consistency of revenue and earnings growth—even during recessions. The company’s stock market chart appears below:
Chart courtesy of www.StockCharts.com
A company doesn’t have to be large to be a recession-resistant business. Certainly a large-cap company has more economies of scale to weather the storm, but what’s more important is the kind of business a company is in and how it is managed.
AZZ Incorporated (NYSE/AZZ) is a small-cap company that manufactures and sells electrical components to utility companies. (See “The Debt Demon Lurks—It’s Still Out There Waiting to Strike.”) On the stock market, the company’s share price has been a solid winner for five years straight. It recently split its stock two-for-one and its shares took off. AZZ’s stock market chart is below:
Chart courtesy of www.StockCharts.com
A lot of people expect the U.S. economy to experience another technical recession next year or in 2014. It’s a good assumption to plan for because of the country’s track record. From the investor’s point of view, part of the attractiveness of a recession-resistant business is dividend income. I think dividends will be crucial over the next couple of years, because I don’t expect much in the way of capital gains.
Over the last 10 years, the Utilities Select Sector SPDR (NYSEArca/XLU), an exchange-traded fund (ETF) that holds most of the biggest utility companies in the U.S., has been far more volatile than Southern Company. A lot of stock market investors might be put off by the utilities sector as not offering enough growth. Pull up a long-term chart on Consolidated Edison, Inc. (NYSE/ED) and factor in dividends, and minds will change quickly.
About Michael Lombardi (http://www.profitconfidential.com)
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.