Apparently we've been in a recession for a year now, and the layoffs are beginning to ripple out from malls and car dealerships to factories. Folks are cutting back, and stores are closing down. A local radio DJ spent a morning playing songs evoking the Great Depression, topped by Tom Waits grinding out "Buddy Can You Spare a Dime" with grim conviction. I inherited a Depression-ready mentality from my parents, and I've already had visions of bread lines and soup kitchens dancing in my head, rather than sugarplums.
Giving in to my pessimism and to dire predictions of more and worse to come, I've come up with a basket of stocks that I think would be most likely to survive a long downturn. I call it my Poorhouse Portfolio. I've included some typical bear-market sector stocks and added others that I think could be new additions to hard-times stocks.
The Education Refuge: During downturns, when jobs are being lost, some job seekers decide to upgrade or retool their skills. There are several purveyors of education that have done well so far during the downturn, but the one that appears strongest to me is Apollo Group (APOL).
Sticking to Soup: A staple of a downturn would seem to be soup, but Campbell's (CPB) most recent report was poor. I think a better alternative would be Ralcorp (RAH), which turns out even cheaper canned soups and vegetables that are sold under supermarket or generic brand names.
Divine Discounts: The discount stores are faring better than upscale and middle-class purveyors like Nordstrom's (JWN) and Penney's (JCP). There are four strong contenders in this category, BJ's Wholesale Club (BJ), Wal-Mart (WMT), Costco (COST) and Dollar Tree (DLTR). I love shopping at Costco, but I think the best bet in this group, based on fundamentals, is BJ's.
Quick Stops: Another category that is doing well during the downturn are the convenience stores, largely because gas has gotten cheap and folks are buying small amounts of food and snacks along with the gas. Pantry (PTRY) has the best balance sheet in this category.
Still Need Soap: Some pundits are pushing Procter & Gamble (PG) as a recession-proof stock, since we all want to stay clean, even when we're sweating the economy, but I like the looks of Church and Dwight (CHD) better. Baking soda, its mainstay, is still really cheap. And another of its products, Trojan condoms, would also seem to be recession-proof.
Lipstick on a Pig: You can't put lipstick on a pig, making anything pretty out of this downturn. But women are going to keep buying lipstick, and we like Revlon's (REV) cheap prices and the stock's cheap price.
Store It: Folks who are losing their homes or having to downsize are stashing their possessions in storage units. These units fill up when homes and apartments go empty. Public Storage (PSA) has just had a recent jump in price, but its fundamentals look strong.
Pawn it: EZCorp (EZPW) has held up well so far, and it will benefit from the pawn shops it bought in Las Vegas, which are undoubtedly seeing a lot of bling these days as the casinos are hurting.
Disclosure: I own shares of APOL, CHD, PTRY and REV.