There's a lot of concern that we are entering another recession. Even worse, inflation may slap us in the face. In times like this, many people may choose to reallocate their assets out of small-cap stocks and into cash-rich large caps. That make a lot of sense, but don't throw out the baby with the bath water. There are many stocks tailor-made for hard times.
EZCorp (NASDAQ:EZPW) is primarily an operator of several hundred pawn shops in the U.S. and Mexico. The company's earnings soared during the recession, as the unemployed sought to borrow funds against personal possessions. The company continues to expand at a rapid pace, has a solid balance sheet and is not exposed to the Dodd-Frank regulation in any meaningful way.
Portfolio Recovery Associates (NASDAQ:PRAA) is a collection agency. They buy charged-off accounts, mostly from credit card companies for a penny or two on the dollar, then try and collect on them. It doesn't take much to make that deal work. If they can collect even 5 cents, it's a winning proposition. The company is actually in the midst of hiring new workers.
Copart, Inc. (NASDAQ:CPRT) has become the leading auto salvage and re-seller in the nation. It's a heavily fragmented industry, but Copart has revolutionized its buying, salvaging, and re-selling methods, thanks to the internet. It's relationships with insurance companies are extensive, it carries no debt, and is has strong growth. People will always destroy their cars no matter what the economy is like.
McDonald's (NYSE:MCD) is the obvious go-to play for bad times. Cheap food is always popular. So is fast food. Put them together and you have a global brand-name that pays a solid dividend and will see even more traffic as people bail out of more expensive meals for that Big Mac.
Coca-Cola. (NYSE:KO) Yes, I know I keep writing about it in every other article. But it's a great company! It has $13 billion in cash! It's growing at 9.5% annually! It pays a dividend! You can find Coke in a desert in Africa!
There are other stocks that you can fill your portfolio with, and you do want a diversified portfolio that will expose you to all kinds of sectors and "forever holds" so you don't miss out on anything. Stocks that pay solid dividends, and preferred stocks are great ways to hedge your portfolio while also generating solid income. Mix in a few special situations -- stocks that trade in patterns you are familiar with -- and you can come out of the recession just fine.
Disclosure: I am long EZPW, CPRT.