3 Stocks That Will Go Up in a Double-Dip Recession

Includes: CSH, DNDN, LPS
by: James Altucher

The first article I read this morning, (at 3:56am, my early morning, pre-coffee, article read before catching a 4:40am train), started off with: "Stocks are likely to face another choppy, downtrodden week, but that's no big surprise". Man, someone is depressed. But it's not just that article writer, everyone really is depressed. Things are ugly out there. Even though we have GDP growth, even though retail sales are up significantly year over year,even though GM, that beacon of American industry, is coming public after two back-to-back profitable quarters, everyone assumes we are heading towards a double-dip.

We also have visceral memories of what happened the last time the country was in a recession (October, 2008). The entire world fell apart and the S&P skidded almost 1000 points. The world really felt like it was ending. I lived on the corner of Wall and Broad at that time. You couldn't find any light in people's eyes. It was like land of the zombies as traders marched into the New York Stock Exchange across the street. Nobody wants that again. Nobody wants to be a zombie.
But the reality is, shorting the market at the worst, most depressing moments would've cost you money. Lots of it. The sad, depressing moments are when you want to stop listening to economists and you want to start looking for stocks. Heck, I should stop reading these early morning, "let's get the week started" articles. Particularly before my first coffee of the day.
Let's be smart about it, though. If you're worried about a double dip, pick stocks that could go up long-term if the economy goes down from here, but also have a decent chance if the economy goes up:
  • Lender Processor Services (NYSE:LPS). A spinoff of Fidelity National, LPS provides technology and services to the mortgage and real estate industries. Its business has been booming lately. How come? I thought mortgages were heading towards their lows? Well, when people stop paying a mortgage, a foreclosure is a long and complicated process. LPS is there every step of the way helping banks and lenders foreclose on properties. Not the funnest job in society (I highly recommend the 1980s movie "Repo Man") but profitable. The company trades for just 7 times forward earnings. This is a classic spinoff play that drops when the holders of the parent don't want the child (so there is irrational selling).
  • Cash America (NYSE:CSH) I first recommended this on CNBC in February 2009 when it was trading at $14. Now it's at $30 and still cheap because of the massive growth they've experienced during this recession, as predicted.

- about 70% of their revenues are pawnshop, 30% payday lending.

Pawnshops are great because you loan the money AND keep the

collateral, which is usually valued at about a 20-50% loan to value.

And the interest rates are extremely high.

- trades at about 5 times cash flows.

- very cheap right now because of worries about regulatory issues.

Ohio just stopped payday lending for instance and CSH had to close its

stores there. However, this is particular to Ohio and has not been a

major trend. If payday lending stopped then millions of voters would

be without banking.

- ironically, inflation is helping CSH because the prices of the gold

bracelets, necklaces, etc in their pawn shops are going up.

  • Dendreon (NASDAQ:DNDN) - of course I have to pick Dendreon. Prostate cancer has nothing to do with the economy and is one of the biggest killers of men. Provenge is the first FDA-approved drug that will significantly improve survivability of the cancer. In trials for men over the age of 65 in late stages of the disease the survival rate was 23 months versus 17 months for the control group. When this company is making $800mm in earnings by selling the drug it's not going to have a $5bb market cap but will end up being acquired for $10bb+. The stock is still at the same levels it was at pre getting approval for their drug. I expect this will be a $70 stock no matter which direction the economy goes.
Ignore the stocks that everyone is focused on. Even though AAPL and GOOG are the greatest companies in the world, they will go up and down with the market. And while Goldman Sachs (NYSE:GS) was the one major bank to basically survive unscathed during the last recession, I wouldn't count on it for any potential next double dip given the amount of hate and fear it's engendered among the populace.
While I don't think we are in a double-dip, it's always good to hope for the best and prepare for the worst. These three stocks will do well in a double-dip but also do well in a rising economy for the reasons described. Protect your portfolio.

Disclosure: No positions