4 Stocks To Make Your Portfolio Thrive In A Recession

Includes: AAN, FCFS, FDO, ROST
by: Bayesian Investing

With all the headlines lately screaming of the coming financial apocalypse, it isn't surprising to see that articles have been popping up on Seeking Alpha about "recession-proof" stocks. The advice has been good, if somewhat obvious: stocks like Wal-Mart (NYSE:WMT), McDonald's (NYSE:MCD) and Coca-Cola (NYSE:KO) will continue to earn plenty of cash even in a recession.

But why stop at stocks that are just recession proof? Let's look for some companies that will actually thrive during a recession.

Family Dollar Stores (NYSE:FDO)

Family Dollar Stores Inc. provides consumers with low cost, basic merchandise for the home and is one of the fastest growing discount store chains in the United States. This thrifty place provides consumers merchandise that is sold at everyday low prices in a no frills, low overhead, self-service environment.

The stock popped over 23% in 2008 as the company thrived when suddenly cash conscious consumers flooded their stores. Previously, Family Dollar Stores marketed more to low in-come families but thanks to the Great Recession now have a new following of thrifty middle class families. Another recession just might be a blessing for this stock.

Dividend lovers should note that FDO has raised their dividend for 34 straight years at an average increase of over 10%.

Ross Stores Inc. (NASDAQ:ROST)

Ross Stores provides home accessories at off-retail prices. Their low-price designer brands target middle and higher income people that are value conscious. Even for people doing fairly well, the devastating recession in 2008 convinced more people to spend their cash wisely. As the economy continued to tank, Ross Stores' sales began to grow faster and faster and so did their dividend: a 25% 5-year dividend growth rate was actually eclipsed by a 45% hike this year.

Their dividend has been growing exponentially the last five years and another recession may just be the catalyst they need to keep that trend continuing.

Aaron's Inc (NYSE:AAN)

Sadly, some people can not afford to buy new furniture -- discounted or not. This is where Aaron's Inc. comes in: they offer leasing and lease-to-own options for a wide range of consumer goods including furniture and electronics. The stock started going down with the general market in 2007 but rallied hard in 2008 while the dow sank like a stone.

As a dividend investor, I do take offence to their paltry .24% yield. While I do wish Aaron's would open their wallets a bit more, we can probably forgive their stinginess considering their stock appreciated 500% during a "lost decade."

First Cash Financial Services (NASDAQ:FCFS)

What could be a better stock in a terrible economy than a pawn shop? First Cash Financial Services provides consumer loans to the public that are secured by property. This is simply a great business model: they charge people a rather high fee for a 100% secured loan...and if they don't pay it back they simply sell the property at a profit.

This small cap gem has been growing by leaps and bounds but has yet to announce an inaugural dividend. As unpleasant a thought it is, the reality is that if another recession hits, there will just be more Americans pawning their tvs.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ROST over the next 72 hours.