Many investors are justifiably concerned with a possible new recession hitting the U.S. and the global economy. Unemployment remains high, consumer confidence has dropped in the face of the debt ceiling debate and ensuing downgrade of U.S. government debt. With all the fear and some comparing the current economic situation to a possible repeat of the recent financial crisis, it's important to remember that a recession does not mean an economic collapse. According to Investopedia, the definition of a recession: "The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP), although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession." Read more here.
Since many recessions only last a couple of quarters and only usually add up to being a small contraction in the economy, it often pays to buy stocks when they are on sale over a perceived or actual recession. Also, it makes sense to focus on companies that can prosper in a recession. Due to superior business models and the ability to offer goods and services that will remain in demand even if economic activity declines, the companies below could see higher stock prices in the coming months:
Apple Inc. (AAPL) shares are trading over $356.03. Apple is a leading maker of computers and mobile devices. The 50 day moving average is $359.94 and the 200 day moving average is $342.37. Earnings estimates for AAPL are about $27.41 per share in 2011 and $32.12 for 2012. The 52 week range is $235.56 to $404.50. Apple is well managed and has products that are unique, and this has allowed Apple to take market share away from other companies. The consumer demand for Apple products will remain strong in a recession and only get stronger as the recession fades. I would buy AAPL on dips.
Red Robin Gourmet Burgers Inc. (RRGB) is trading around $29.09. Red Robin is a gourmet burger restaurant based in Colorado. The relative strength index is about 36 which indicates these shares are oversold. The 50 day moving average is $34.85 and the 200 day moving average is $26.97. These shares have traded in a range between $17.03 to $39.32 in the last 52 weeks. RRGB is estimated to earn about $1.57 per share in 2011 and $1.91 in 2012. I am not a big fan of restaurant stocks because some of them have very high PE ratios, but Red Robin has pulled back in price and it has a concept that can prosper in tough economic times. If you have never tried Red Robin, you should, and you will see why this company can see continued growth due to higher quality food and friendly service. I would buy this stock on any dips.
Vistaprint (VPRT) shares are trading at $26. Vistaprint offers printing services and products for business. The shares currently trade below the 50 day moving average of $40.41 and the 200 day moving average of $46.31. These shares have traded in a 52 week range between $25.70 and $56.25. Earnings estimates for VPRT are about $1.63 per share for 2011. VPRT shares fell off a cliff after earnings were reported. The stock was at about $45 and has dropped to the $26 level. This stock was priced for perfection before earnings but now are trading at levels that make it less risky. Vistaprint is likely to keep taking market share away from smaller competitors, especially in a recession.
McDonald's Corporation (MCD) shares are trading at $87.23. McDonald's has thousands of restaurants worldwide. The 50 day moving average is $84.92 and the 200 day moving average is $78.83. Earnings estimates for MCD are $5.22 per share in 2011 and $5.77 for 2012. The 52 week range is $72.14 to $89.57. MCD pays a dividend of $2.44 per year, which is equivalent to a 2.8% yield. This company has a very strong balance sheet and the PE ratio is low for the growth potential. Compared to other restaurant stocks, MCD looks downright cheap with a reasonable PE ratio and a healthy dividend. This stock has held up very well in the recent market correction and is likely to continue doing so.
Google Inc. (GOOG) shares are trading at $490.92. Google is a leading Internet search engine with significant global exposure. The 50 day moving average is $545.25 and the 200 day moving average is $571.75. Earnings estimates for GOOG are $35.45 per share in 2011. The 52 week range is $447.65 to $642.96. Google is an innovator and the stock has been hit hard recently. This is a good opportunity to buy at the low end of the trading range. This company has a very strong balance sheet and the PE ratio is low for the growth potential. Online advertising should continue to grow as more business revolves around the Internet.
Amazon.com Inc. (AMZN) shares are trading at $178.93. Amazon is an Internet retailing giant and is based in Washington. The shares have traded in a range between $105.80 to $191.60 in the past 52 weeks. The 50 day moving average is $186.60 and the 200 day moving average is $203.88. Earnings estimates for AMZN are $2 per share in 2011 and $3.25 for 2012. Amazon is so much more than a place to buy retail goods. This company continues to expand into areas that could lead to continued strong growth in the future. The Kindle book reader has been extremely successful and Amazon is likely to continue with business and product innovations.
The data is sourced from Yahoo Finance and Stockcharts.com. The information and data are believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VPRT, AAPL, RRGB over the next 72 hours.