4 Places To Hide In A Falling Stock Market

Includes: ADM, BUD, CMO, HTS, MO, NPK, RAI
by: Kevin Quon

The problem with taking a long position in the stock market is that slightly less than half the time, you'll always be on the wrong side. With every run up, stocks tend to rally together. The same principle applies in the reverse, however, as they will often fall together when the general market takes a dive. As a result, those unwilling to take the pain with the gain can find it useful to position their portfolios in a way that mitigates the most amount of loss potential.

By diversifying into stable companies that have proven themselves to be more recession-proof, investors willing to shuffle their portfolios when times appear to be getting tough can still retain access to market exposure. In doing so, such investors can still participate in the market's eventual recovery or earn income throughout the period of downward pressure. They can also still prosper in case their timing of the market was not as accurate as they predicted. The following industries offer a few suggestions to consider during the hard times.

  • Mortgage Reits. While companies classified as mortgage real estate investment trusts (mREITs) utilize an exuberant amount of leverage, such companies tend to prosper in a low-interest rate environment due to a lower rate of borrowed money. As the government tends to lower interest rates as a means to stimulate the economy, mREITs often offer a stable share price and a high yield income stream during a depressed market. Companies with agency-backed portfolios guaranteed by a U.S. government agency offer a higher degree of default protection. Several such companies include Hatteras Financial (NYSE:HTS) and Capstead Mortgage (NYSE:CMO).

  • Agriculture. As one of the most stable of industries, agriculture companies capitalize upon the necessity to eat. These companies work on economics reliant upon a renewable resource. Corn & feed processor Archer Daniel Midlands (NYSE:ADM) and oilseed processing giant Bunge (NYSE:BG) offer two stable platforms that will continue to prosper alongside the growth of the world's population.

  • Cigarettes & Alcohol. As a market sadly made stable through consumer reliance and addiction, companies like Philip Morris International (NYSE:PM) and Anheuser-Busch Inbev (NYSE:BUD) tend to offer steady growth trends. Cigarette companies like Reynolds American (NYSE:RAI) and Altria (NYSE:MO) also tend to offer high dividend yields, which can help during a downturn market.

  • Household Products. As an industry that creates the things we use on a daily basis, companies that create these goods rarely succumb to overreactions felt on the market. Large blue chip companies like Johnson & Johnson (NYSE:JNJ) and Proctor & Gamble (NYSE:PG) provide some of the most recognizable brand names seen in your local market. National Presto Industries (NYSE:NPK) is another niche name that serves as a mini-conglomerate specializing in stability. As a producer of housewares, ammunition, and adult diapers, the company also distributes the bulk of its earnings through a distributed special dividend that has historically resulted in a rough 8% yield.

As the market appears to possibly set up for another turn down, investors looking to seek some stability as a means of protection might consider swapping their volatile growth stocks for something more stable. The aforementioned industries offer some areas of refuge for investors looking to stay long in a possible downturn and willingly exposed to equities. For those looking to avoid the pain altogether, taking the initiative to sell out of the market entirely is always a possibility. Yet being able to accurately time the market for both an exit and re-entry point often requires a form of patience, discipline, and a sharp eye that many often lack.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.