- Copyright: Merinews
Some companies are devastated in a bear market, while others perform at their peak during recessionary periods. In these volatile times, it’s hard to remember that recessions ever come to a close, but they always do and always will. During the waiting process, the best thing you can do for your portfolio is position yourself for the recovery.
Alternative energy stocks are quick to lead a market recovery for many reasons. The biggest reason is that the dramatic drop in energy prices are usually recorded in periods of recessions. With consumers cutting back on driving and spending, along with entire factories shutting down, the reduction in energy use is outstanding. After months of $100+ oil, the alternative energy sector was just starting to gain steam, certainly more so than with $40 barrels of oil. Alternative energy should lead the way by tracking closely to price changes in oil.
“Value Added” Businesses
Savings rates generally increase in recessionary periods, and with that trend comes decreased spending. While some consumers cut back by clipping coupons or scouring for deals, others press on and find alternatives to the products they already buy. Value-added businesses like Apple produce products with high profit margins, but spend billions on marketing and design to catch buyer's attention. With limited funds, consumers may think twice between buying a $250 iPod or a $150 off brand with similar specs. While the cheaper product may be of lesser quality and somewhat limited benefits, the difference in price is enough to lock in the sale. In contrast, when times are good and money is cheap, the difference of $100 might seem small for more features or an impressive looking product.
The Banking Industry
The banking industry was smashed in the latest recession, but will be quick to recover when the US economy does. At center stage in the credit crisis were subprime loans and alt-a loans, which adjusted to monthly payments that borrowers could afford. However, with the banking industry as leveraged as it is, a drop of 2-3% in the unemployment rate could turn many banks back to profitability. Just as is the case with other high cost, low margin businesses, the banking sector can bank on any turnaround in the US economic picture.
The Big Ticket Items
Durable goods and big ticket items are great sellers during economic booms, but their products go bust even on the smallest recessions. This shows itself most in the automotive scene, where the once invincible Toyota Motors posted its first loss in history on slower car sales.
Knowing what stocks to purchase at their recessionary lows will have your portfolio humming, ready for the next cycle of economic prosperity.