Making Easy Stock Picks in Tough Markets

Even in downturns, some stocks continue to shine. Here's a brief list of four sectors and stocks that rise, even when it seems everything else is falling.

Consumer Staples Stocks

Consumer staples stocks make for easy stock picks in bear markets. Consumer staples are products that we need to live, ranging from food to hygiene products. Regardless of how tough the economy gets, consumers will still demand these products.

One common misunderstanding is that these stocks do not necessarily see sales gains during recessions. In fact, they may see sales slumps, but because of their perceived safety, professional money managers move out of riskier stocks and into consumer staples. With so much money flowing into these companies, they can't help but go up during bear markets.

Debt Laden Companies

At face value, it seems difficult to believe that indebted companies would lead this list of easy stock picks in bear markets. However, during recessions, monetary policy dictates that the market needs lower rates. As rates plummet, companies swimming in debt swap their high-interest debt obligations for longer term, lower interest rate bond offerings that allow them to both decrease their outbound cash flow and total interest expense, making them hot stock picks.

Keep in mind, however, that the adjustment in income and cash flow is usually one off. That is, if a company shows a 50% increase in profits on a reduction in borrowing costs, they will not be able to sustain that growth for any significant period of time. Again, these are stock tips, not long term investments.

International Companies

What do Philip Morris International, McDonald's, and Coca-Cola all have in common? They all make most of their money outside of US borders.

By operating overseas, these companies earn an income in foreign currency that has to be brought back to the United States and converted to dollars. During recessions, the value of the American currency usually drops relatively to other countries. Thus, earnings from overseas ventures appear better than they really are, all thanks to a favorable exchange rate. The conversion makes these great stock tips in bear markets.

Be warned, however, that a reversal in currency values can happen quickly. Most companies experience only one or two quarters of supercharged earnings per share before currency values fall back in line with recent averages.

Counter Cyclical Stock Tips

McDonald's, WalMart, and Dollar Tree are three US names that benefit from being counter-cyclical stock tips. When the economy plummets, these three companies actually see a growth in business as they attract their competitor's loyal customers.

During a downturn, McDonald's inexpensive meals seem far more reasonable than a $50 steak dinner. Likewise, WalMart's Supercenter status and Dollar Tree's $1 items attract thrifty shoppers.

Even in the most bearish of markets, there are plenty hot stock picks. Believe it or not, the markets tend to follow a very simple cycle of bull and bear, where the “safest” and best known brands attract money in the bearish markets, but the riskier assets attract capital in the most bullish markets.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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