Three “Safe Haven” Sectors For Your 2009 Portfolio
Issue #585: Tuesday, December 30, 2008
by Martin Denholm, Managing Editor, Smart Profits Report
Last Christmas, my brother bought me a shirt that reads:
The Top Ten Reasons Why I Procrastinate…
1.
Regardless of whether the cheeky lad thinks this sums up my character, it always provokes comments or a laugh when I wear it.
As the final hours of 2008 ebb away, I bet economists and financial commentators have procrastinated more than usual over their traditional New Year forecasts. Given the rollercoaster year of upheaval and surprises we’ve just endured, compiling a “Top Tips For 2009″ or “Best Stocks For 2009″ list is much trickier than normal.
One thing seems certain: There’s more economic pain to come, which is forecast to drag into the second half of 2009 and possibly beyond.
The issue for investors is: There must still be good stocks out there. How do I find them?
In my last column, I ran down a list of stocks that I expect to profit from President-elect Obama’s massive U.S. infrastructure spending spree in 2009. Today, I’m going to give a few quick tips on what sectors to focus on…
A Healthcare Haven
It stands to reason that the sectors and companies that traditionally fare better during economic recessions are those that garner essential repeat business.
As my colleague Marc Lichtenfeld has pointed out many times here before, that includes the healthcare and biotech sectors. And far from procrastinating, Marc just issued his “Five Predictions For The Healthcare Sector In 2009″ for Xcelerated Profits Report subscribers in the January issue. If you’re not a subscriber, you should be! You can get more information on that here.
No matter what happens with the broader economy, people will still get sick and will still need drugs and medicines. With a growing population and people living longer, the long-term prospects for healthcare remain excellent.
But in a poor economic and investing climate, your best bet is to stick with the powerhouse pharmaceutical companies like Johnson & Johnson (NYSE: JNJ) and Proctor & Gamble (NYSE: PG), which are masters of the “razor-and-blade model” (basically, once a consumer buys a razor from the company, he/she needs to keep buying blades for it, thus generating repeat business). In the biotech world, look at big boys like Genentech (NYSE: DNA) and Gilead Sciences (Nasdaq: GILD).
Food, Glorious Food (And A Bunch Of Other Stuff, Too)
If people regularly require medicines and drugs, they need everyday essentials like food and drink even more. And while the retail sector is struggling overall, there are some companies that should fare well as the economy stumbles and consumers cut back.
You got it… discount retailers. Okay, so I know pretty much all retailers are slashing prices these days in a desperate bid to get folks to spend their hard-earned dough. But the ones who already boast a discount model as their bread-and-butter are better prepared. That includes sector bellwether Wal-Mart (NYSE: WMT), plus bulk goods stores like Costco (Nasdaq: COST) and BJ’s Wholesale Club (NYSE: BJ), which also offer a huge range of items at bargain-basement prices.
Switch On And Profit
Another favorite safe haven sector during economic downturns is utilities. Again, the companies within it produce goods that consumers can’t live without: Energy and power such as electricity.
The Dow Jones Utility Average (^DJU) includes major power producers like American Electric Power Company (NYSE: AEP), Exelon Corporation (NYSE: EXC), Consolidated Edison (NYSE: ED), and Southern Company (NYSE: SO), which generate reliable, repeat revenues and also pay hefty dividends.
And speaking of dividends, you could head to tiny Luxembourg this New Year and pick up a beefy one with steelmaker Arcelor-Mittal (NYSE: MT). A Business Week article cites the company as a potential turnaround performer next year, stating:
“Most analysts think it’s unlikely that Old World bourses will rally before the second half of 2009. Still, investors with more appetite for risk - and a willingness to pore over balance sheets - can find some good values even in cyclical businesses such as manufacturing. Bleak earnings outlooks have already been factored into many share prices.”
And having endured a brutal 2008, slumping from $78 to $24 a share, Arcelor-Mittal has announced widespread cost-cutting measures that includes shedding 9,000 jobs in a bid to save $1 billion. Its forward Price-to-Earnings ratio is just 2 and with Obama’s infrastructure revolution set to get underway in 2009, the global steel giant could be well poised to profit from it.
The “No-Hype” ‘09
As 2008 thankfully disappears, it will be more important than ever to stick to the tried-and-tested investing principles in 2009.
Right off the bat, that includes being very watchful for hype. In a down market, some companies will undoubtedly be keen to gloss over or downplay any bad news, for fear of causing harm to their stock prices in an already weak market.
Make sure the companies you invest in boast strong, honest management teams, with minimal spin and no excuses. It sounds simple, but look for companies with competitive advantages and which continue to grow revenues and earnings and even pay dividends as a key sign that they’re probably still in good shape.
Remember that with recession hanging over the economy - one projected to be the worst and longest since 1982 - upward momentum could be tough to achieve. Investors are still very skeptical and, among other things, are likely waiting for GDP growth to improve (or at least not be revised lower)… for corporate earnings to beef up… for job losses to ease… for Obama’s tax cuts… and to see what kind of effect Obama’s huge economic stimulus package proposal has. It will arguably take something around $750 billion to provoke much sustained, positive reaction.
So be very wary about bold statements, proclaiming that we’ve seen a bottom in the stock market. We probably haven’t yet. Meantime, consider some of the companies mentioned above and/or those that pay dividends.
That wraps it up for today - and indeed for 2008. Have a safe and happy New Year celebration. We look forward to bringing you more insights in what we hope will be a prosperous 2009 for you.
Martin Denholm
P.S. I’m generally not a fan of making New Year’s resolutions simply because the calendar flips from one year to another. But here’s something you can easily do to kick off 2009 in the right way - and position yourself to profit from the huge opportunities that next year will bring (ones that we’ve talked about several times in previous columns): Upgrade your subscription and join the Xcelerated Profits Report team.
Our elite group of professional traders will show you how to dodge the stock market’s landmines next year - and help you to not only stay protected through excellent, low-risk investment strategies, but profit handsomely from the trends, too.
Relying on the mainstream media for profitable information just isn’t going to cut it. They thrive on fear and sensation… we thrive on profits. It’s that simple. Set yourself up for a whole year’s worth of specific investment recommendations that allow you to accelerate your wealth faster and with less risk than 99% of “ordinary” investors. Check it out here.
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Today’s Smart Profits Notes
~ Which U.S. city has endured the worst 2008? My vote goes to Detroit. In hopes of snagging a quick n’ easy $25 billion in bailout money from the federal government, the CEOs of General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler thought it would be a great idea not to drive to Washington in their companies’ cars, but to fly there in lavish corporate jets instead. Way to make a statement, fellas! The “Detroit 3’s” embarrassing pleas initially fell on deaf ears and they retreated back to the Motor City with their tails shoved firmly between their legs. Couldn’t they have “jet-pooled?” They got a bit more attention when they drove there (separately), and have now secured a fat, sweaty wad of Washington cash… but the outlook remains desperate.
Oh, and the Detroit Lions just capped a miserable 2008 season by becoming the first NFL team ever to lose every single game. Perhaps they should apply for a bailout, too.
~ New Year predictions are always popular right now - and this year is no different. While analysts believe the U.S. recession will last into the third quarter of 2009, they also say that banks will start lending again possibly as early as the January-March period.
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