The current economic slump is the worst since the Great Depression - few economists will argue with that. It has some characteristics that the previous recessions did not have - high oil prices, low housing prices - just to name a couple. The world is different now - we have the EU with its own currency that acts like a "fetter" (akin to the Gold Standard of the 1930s) on its over-leveraged cash starved members with weaker economies which are going through brutal transformations (demise of the unions, outsourcing to China, etc.). All these things have made world's asset markets highly volatile. Plus, today' technology adds to this volatility.
The situation does not play in favor of long term investors. They should actively monitor their portfolios and at best, make medium term projections. So, you should be very careful about selecting which stocks you want to buy. Are there any recession proof stocks? While the answer is affirmative "yes", arbitrage applies here just like in any other situation. It simply means that as more people find out about these stocks they may well become overvalued with no or little potential for future growth. Thus, they are best to buy before or right after the beginning of a recession.
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in its latest issue takes a look at these stocks. Not surprisingly, the direction they choose is pretty straightforward. As baby boomers enter the old age, they will need... well, to eventually be buried. It's this kind of logic that leads Forbes to list companies like StoneMorPartners and Stewart Enterprises as good candidates for recession proof investments.
So called, "sin" stocks are another potential category. It includes cigarette makers like Altira and alcohol producres like Diageo, casino operators like MGM Mirage.
Then there is a whole group of corps that appeal to low income consumers and those who lost good credit and now need to monitor their credit and repair it. Deep discount stores like Family Dollar Stores, credit score verification and credit repair companies, payday loan lenders
like Advance America and Cash Advance - all fall in this category of recession proof stocks.
Some analysts also recommend pharmaceutical companies. My Pfizer stock, however, under-performed this year compared to the three indexes. Technological companies are another good bet and caution has to be exercised just like with pharmaceuticals.
From the above discussion it follows that the best way to find recession proof stocks is to watch the trends and predict where they are headed and which industries they are likely to have an effect on. The baby boomers example can be further extrapolated to see what sectors may potentially benefit from this trend. Finally, while these stocks may not insulate your portfolio from the recessionary effects, they are certainly good for further diversification.
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