Rate:
Share
Views: 10732
Text Size:
Comments (3)

Recession Proof Stocks

Bullish for Biotech

By Ian Cooper
Friday, December 7th, 2007

Corporate America is in a recession, and the broader economy may not be too far behind. Slower sales and higher energy and labor costs battering corporate America are already raising fears that the economy, rattled by housing woes, may shrink in 2008.

Corporate profits crumbled at an annual rate of $19.3 billion in the third quarter of 2007, as domestic earnings fell $41.2 billion. That came as Q3 profits for S&P 500 companies fell close to 25 percent, and as corporate America announced some 25,000 job cuts for 2007 alone.

Sure, there are those who don’t believe a 2008 recession is imminent, like Larry Kudlow and the quarterly UCLA Anderson forecast. But for argument’s sake, let’s say recession risks are highly elevated, which the Congressional Budget Office and a Merrill Lynch economist just warned about on Wednesday.

Housing remains weak. There’s a tighter supply of credit, as well as lower business and consumer confidence. And crude oil is up 60%, which could hurt growth, making for the perfect recessionary storm.

While it’s impossible to know what’s coming next, you don’t sell in panic mode. You buy opportunities in crisis and small-cap stocks. Here’s why.

Small caps were king during previous recessions.

  • When the economy shrank from July 1981 to November 1982, the small-cap Russell 2000 was up 9.4%, while the S&P 500 gained 5.8%.
  • From July 1990 to March 1991, the small-cap index was up 5.9% as compared to the 5.4% S&P 500 gain.
  • And from March 2001 to November 2001, small caps added 2.3%, as compared to the S&P 500’s 1.8% gain.

Again, you don’t sell in panic mode. You buy small caps, opportunities in crisis, and those with limited exposure to sub-prime and housing, such as drug stocks. Even in times of economic uncertainty, people still need their prescription drugs. They’re recession-proof.

How many people are going to not buy blood thinner medication because of an economic slowdown? The choice is simple. Take the medication or die. People still get sick in a recession. If memory serves me right, I once caught a cold during a recession. Good news for drug stocks.

What’s more, get excited about this: From the start of 2000 to the tail end of 2003, the S&P 500 fell about 20% as the economy headed south. At the same time, the AMEX Biotech Index was up about 25%.

Small Cap Trading Pit just revealed one biotech to own today. Check it out at http://www.sctradingpit.com.

Ian L. Cooper
http://www.wealthdaily.com





Rate this article: 		 
     Current Rating:  
Article RatingArticle RatingArticle RatingArticle RatingArticle Rating (12 votes)

Comment on this Article


Comments:

Comment by Payday Loans on 2008-12-04
The biggest criteria in the United State’s recession are employment, income, industrial output, and sales figures. The peak time for income and employment were in December of 2007, industrial output peaked in January 2008, and then sales peaked in June. Congress, especially Democrats, weren’t exactly surprised, and called for a stimulus package. Senate Majority Leader Harry Reid (D-Nevada) said that “The announcement simply makes official what we have long known: with rising costs, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet.” Not rolling over and granting the banks’ wish to ban payday loans would be a good idea, too. Bear in mind that economies work in cycles, booms and busts. The expansion that just ended lasted from November 2001 to December 2007, for 73 months. The record is 120 months, but most expansions last an average of 57 months since the end of World War II.
Comment by Coleman on 2009-05-31
This is a good article, but the claim about pharmaceutical stocks being recession proof is not true. Some stocks in the this business sector are, but take a look at NVD (NovaDel Pharma), LJPC (La Jolla Pharmaceuticals), OSCI (Ocient Pharmaceuticals, or a variety of other "drug stocks" that are not faring well in this recession.
Comment by Coleman on 2009-06-06
I wanted to clear up my previous comment about drug stocks not being recession proof and the 3 stocks I mentioned in said comment. Actually, while not recession proof, there are some drug stocks that are doing pretty well even in this bear market, such as PFE (Pfizer, Inc.) And while definatley not recession proof, the three stocks I brought up in my previous comment have been going up, despite the fact that their prices are all under $1.00, which is due in part to the recession and bear market. So if bought in large enough quantity, those stocks can be pretty profitable.