Four Recession-Proof Stocks Investing for 2012 and BeyondCompanies / Investing 2012 Jun 27, 2012 - 05:55 AM GMT
Don Miller writes: Despite the efforts of Federal Reserve Chairman Ben Bernanke and his cohorts, it looks like gridlock in Congress will push us into a recession in 2013, if not sooner.
In case you haven't been paying attention, "Taxmageddon," and election-year politics have driven the economy to the edge of a "fiscal cliff." This means the start of next year, unless drastic measures are taken in Washington, is looking precarious for investors.
Just look at what recent U.S. economic reports have told us.
"The Chicago Fed's activity index came in at -0.45 Monday morning, while recent weekly unemployment data have been weak and the Michigan consumer confidence is down," said Money Morning Global Investing Strategist Martin Hutchinson. "Given that first-quarter GDP growth was already under 2%, it looks as though the U.S. economy has stalled. Accordingly, we need to ask: how will our investments do in a recession?"
That's why it's time to update our portfolios with recession-proof stocks.
Not All Stocks Can Handle What's Ahead
Tough economic and market conditions saddle most companies with operational and financial problems that aren't easily overcome.
Businesses are usually forced to cut spending and lay off employees. And there are some expenses a company can't eliminate, such as payroll, rent and taxes.
A recession hits the wallets of customers, too, who typically reign in their spending as they scramble to stay afloat.
That becomes a double whammy for corporations.
Orders for new products slow to a trickle. Some customers slow payments or may not pay their bills at all, crippling cash flows.
Still, there are certain businesses that flourish in the adversity of a recession -- making them safe harbors for your investment dollars during bad market conditions.
For instance, Wal-Mart Stores Inc. (NYSE: WMT), Family Dollar Stores Inc. (NYSE: FDO), Amgen Inc. (Nasdaq: AMGN), Celgene Corp. (Nasdaq: CELG) and Southwestern Energy Co. (NYSE: SWN) were some of the market's top performers in 2008.
But why did they do so well when everyone else was struggling to make ends meet?
Turns out, there are certain things people just can't live without, no matter what the economy is doing. And sometimes the most mundane companies provide the best returns.
Here are four "boring" recession-proof stocks to consider now.
Four Recession-Proof Stocks:
The Essential Service Provider: Automatic Data Processing (Nasdaq: ADP) is a great example of a technology service provider that generates buckets of recurring revenue every month by serving an essential function to corporations.
In fact, the company now cuts paychecks for approximately one out of every six Americans.
But that's just for starters.
Despite stubbornly high unemployment in the U.S., ADP has managed to maintain a strong customer base by providing an array of services including hiring, managing compensation and benefits packages, and overseeing retirement planning for employees.
That diversity has allowed ADP to increase revenue every year since 2003 and reward investors with steady and regular dividend increases.
The company has raised its dividend every year since 2004 and currently distributes $1.58 annually, yielding slightly less than 3%.
This is a stock that should weather any recession and provide investors with regular and increasing dividends for the foreseeable future.
The Dominant Discount Retailer: As budgets are tested by an economic downturn, people tend to cut back discretionary spending. Instead, they bargain hunt for the bare necessities, and investors should do the same.
With 1400 stores across 48 states, Big Lots Inc. (NYSE: BIG) is a closeout retailer offering mega-discounts on a wide range of products including groceries, home appliances, furniture and apparel.
BIG owns a massive and efficient distribution system that gets its products to the smallest towns via strategically located distribution centers in Ohio, California, Alabama, Oklahoma and Pennsylvania.
The company has grown earnings per share by over 82% over the last five years compared to just 8.2% for the industry as a whole.
And a price/earnings ratio of 14 makes it a bargain compared to fashionable Costco Wholesale Corp. (Nasdaq: CSCO), which carries a hefty multiple of 25.
A Smoking Sin Stock: No matter where you stand on smoking, the companies that make them keep raking in cash despite declines in domestic cigarette consumption.
Philip Morris International Inc. (NYSE: PM) sells its products in over 180 countries worldwide, including category-killer brands like Marlboro and Red & White.
While competitors like British American Tobacco PLC (ADR NYSEAMEX: BTI) limp on with year-on-year quarterly revenue growth under 2%, PM posted world-beating 26% growth last quarter, driven by increasing demand in Asia and Latin America.
PM also offers a substantial dividend yield of 4.33%, compared to the industry average of just 1.77% and healthy operating margins of 17.45%.
The Health Care Dividend Juggernaut: People get sick and die no matter what happens with the economy.
Healthcare companies like Abbott Laboratories (NYSE: ABT) will continue to benefit from an aging population - with or without a recession.
ABT is a diversified medical device-maker and pharmaceutical company thattrades at 11 times next year's earnings and continues to grow through acquisitions.
Almost 60% of sales now come from abroad, with 23% from fast-growing emerging markets.
Best of all, ABT provides investors with a steady stream of strong cash flow from dividends. The sleepy giant has paid dividends like clockwork since 1924 and sports a spotless record of raising its dividend for the past four decades.
It currently pays a distribution of 3.8% and is projected to grow earnings 11% per year over the next five years.
ABT is a solid long-term holding that has already weathered the worst economic storms.
Remember, just because a market is in turmoil doesn't mean there aren't places like recession-proof stocks where you can ride it out.
©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: email@example.com
Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.
Money Morning Archive
© 2005-2013 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.