US Companies That Won't Be Hurt By a Recession

There's a lot of talk about a recession. I think we are probably in one, and to be honest, it doesn't really matter if we technically are, because our economy is suffering for sure. This spells trouble for most American businesses, because US consumers will spend less in general as they attempt to weather the economic troubles we face. The media won't help this either, because all the reports about how dismal our economic outlook is only keeps people's money closer to them, and US businesses will feel the hurt.

However, there are some US corporations which won't be hurt by a poor economic situation at home. These companies are insulated from domestic troubles by a variety of reasons. Some face huge demand from overseas Some see increase demand from citizens during rough economic times. Whatever the reason, finding a company like this and investing in it as a hedge against further economic downturns is a good way to grow your money in a time when most stocks are losing ground. Here are a few stocks I feel will not feel the recession, or may actually profit from it:

Wal-Mart (NYSE:WMT)

Wal-Mart (WMT), as we all know, is a huge chain of retail stores that sells everything from groceries to clothing. Known for cheap prices that run competitors out of business, WMT is all about price and not about quality. During rosy economic conditions, Wal-Mart sees large demand for their goods. In a recession, Wal-Mart sees HUGE demand. When consumer confidence is low and people are scared about spending money, they will search out the cheapest prices they can, and they will be willing to sacrifice name brands to do it. For necessities like clothing and food, WMT meets the demands of consumers concerned about cost. This is why Wal-Mart saw same store sales rise 3% in February, and why Analysts project WMT will grow by 12.5% next quarter. WMT will see continued growth throughout 2008, but it will probably peak in about 3-4 months, as the economic slowdown will probably begin to lessen at that point. WMT is up 8.79% from a year ago, and up 9.66% so far this year.



Caterpillar (NYSE:CAT)

Caterpillar (CAT), is the number one company when it comes to industrial, commercial and agricultural machinery and engines. CAT has the largest market share of this sector, with a $48.1 Billion market share. Last year they took in 47% of revenue from overseas, and with urbanization in China and India overseas foreign should see steady growth. This is a huge strength of CAT, it seems to be able to maneuver difficult situations here in the US because it has such a strong presence in other places.

Also, CAT provides products that few, if anyone, else can produce. Take for example the 777F, an enormous truck used in mining that can carry over 100 tons at a speed of 40 mph. No one else in the world can provide these kinds of equipment, and that's why you'd have to wait till 2012 for these bad boys if you bought today, and pay millions of dollars for it.

CAT provides little downside for investors, as it can benefit from basically any situation. Disasters provide the need for earth moving vehicles, economic growth of third world countries requires heavy machinery, and more growth here in the US also spells more demand for CAT's product. While the downside pay be low, CAT is a mature company and has less room for rapid growth than other companies. I see CAT as a low-risk play to balance a portfolio looking for a long term and slow growth winner. CAT is up 15.27% from a year ago, and up 6.24% in 2008.

McDonald's Corp. (NYSE:MCD)

The true king of fast food, McDonald's Corp. (MCD) represents today's society. Get something that's quick, pleasing, and most importantly fast. Do that, and then sell the rights to do that to other people who will do most of the dirty work themselves. Love them or hate them, MCD has it figured out. They run more than 31,000 restaurants, employ over 1.5 million people, and operate in over 100 countries. Not only that, but they do it for less than anyone. These last two reasons are why they survive a recession in the US. Because they have such a huge global market, the slowing the US doesn't kill them. Unlike an energy company that only sells the US citizens, MCD sells in most countries, and they are experiencing rapid global expansion. Secondly, the "dollar menu" looks pretty good during a period of economic decline. The inexpensive food they offer sees large demand when people have less money to spend. MCD is expected by analysts to grow 9.56% annually the next 5 years, and 10.7% this year. They are trading at a forward P/E of 17.34, with a forward PEG of 1.62. While it isn't the best value, MCD offers a steady investment when economic times are bad. This February they reported a 12% gain in same store sales. They are up 23.15% from a year ago, however they are down 5.82% Year To Date.

Salil Sessions

First of all I’d like to say hello to visitors of this blog. My name is Salil, and I’ll be writing posts from time to time. By the way if “Salil Sessions” seems somewhat familiar it’s because it’s an acknowledgement towards Alan Sloan’s “Sloan Sessions”. I’m a fan of “Sloan Sessions” because he explains complicated situations simply and with what he feels are the best courses of action. Although I do not claim to have his expertise, I hope to emulate his style and add a light hearted feel towards the stock market. That being said, my posts are not going to be comedy pieces and I will always address the situation thoroughly.

Breakfast at Tiffany’s

Well, for those who haven’t seen it, Breakfast at Tiffany’s is an 1961 film (originally a novel by Truman Capote) about a call girl named Holly Golightly (Audrey Hepburn) who meets a failing writer/ gigolo Paul Varjak (George Pappard). Holly has dreams about one day becoming an aristocrat, going to the best parties, and well achieving any girls’ dreams. As any predictable romantic comedy unfolds the girl exchanges her diamonds at Tiffany’s and goes for her true love, and, what do you know? The diamond fell into the laps of Tiffany & Co investors after the company produced better than expected results for their 07 4th Quarter.

So what does this mean for non-investors? Analysts we’re eager to see how Tiffany & Co (TIF) would fare because it would show how the luxury market is doing. After several bad months on Wall Street, a heavily loss in the luxury market would be another huge concern. Although it is certain that average consumers have cut back on spending, if upper income consumers have done the same then there would be a very grim outlook on consumption – which is the majority of the economy.

After Tiffany & Co reports were released the stock went up 10% and there was a silver lining in the clouds. Perhaps the most interesting parts of the report are the specifics. Even though sales fell 4% in the U.S, they increased a staggering 21% internationally. Booming economies in the emerging markets has caused increase in sales in places like Brazil and China, and even though America’s decline in the past few months has certainly had a detrimental affect globally, it hasn’t stopped the emerging upper middle class internationally from buying some diamond rings.
Although there is a possibility that the eventual decline of the euro could affect demand of US companies like TIF, one has to understand that these countries have been rising at huge bounds for the past 10 yrs and they have reached a position they are not going to give back in a 6 month period. According to Mr. Belloni from Pictet (a Swiss investment bank), “They [luxury companies] are very cheap” and some are only 12 to 13 times forward earnings with high yields with huge cash deposits and very little debt. So how would someone in America play the luxury game? Actually it’s kind of hard. With the 3 biggest luxury conglomerates –LVMH, PPR, and Richemont – all traded only on international markets shy of Tiffany & Co. and Diageo (DEO) there aren’t very many big players on the streets of the NYSE. Instead, some feel the best move is to bet on the sector. Claymore Advisers and the magazine,the Rob Report recently launched an ETF called Claymore/ Rob Report Global Luxury (ROB) . Their holdings include BMW, Porshe LVMH, Christian Dior and various others). You can also look at the Bloomberg European Luxury Index and the Merrill Lynch Lifestyle Index.

Looking at the history of the luxury market in the past 6 months, there has definitely been a decline; however, with heavy amounts of cash and a growing international market this industry might just be a diamond in the rough.

References: Bloomberg; WSJ; About.com; Marketplace – References are linked with article used.

If you have any comments or questions, I would love to hear them. Please let me know what you think of my articles so I can tweak them in the future. You can contact me at salilka@gmail.com . I’d like to thank you for checking out the Salil Session.

ECRO Drops

So I wrote about daytrading a while back, and mentioned ECC Capital Corp (ECRO.) I also mentioned them when I talked about dividends, because they paid such a high one last week. I mentioned how easily it was to trade this stock effectively because of its clear and stable supports and resistance values. However, this all changed today as ECRO closed at .11, and traded as low as .095. This is huge drop, -31.25%, probably represents the beginning of a new trend. I would guess that today's close price (around .10 or .11) will become either the new resistance or new support (probably the support) and a new pattern will be determined in the coming weeks. I would stay away from the stock until a pattern emerges, because if you guess and guess wrong, you could stand to loose a TON. I'm guessing that the sell off is due to the dividend being paid out Friday, and today was the first day of trading afterwards. However, the actual reason may be just arbitrary selling by investors, or knowledge of something that happened that I don't have. After the new pattern is set, I think the stock will still be a good one to day trade, because it seems to settle into predictable patterns of established supports and resistance.