A Recession You Can Love

| About: DXC Technology (DXC)
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Conservatives are crowing about the weak GDP number. The "Obama recovery" the media keep touting is looking more and more like a fraud, according to Investor's Business Daily.

Really? Not really.

What actually happened is that government spending fell at an annual rate of 3.1%. The private economy actually grew at a 3.4% rate, pretty much in line with what you can expect coming out of a recession - twice the average growth rate since 2000.

Forget politics for a moment. There is a recession. But the recession is happening where conservatives want it to happen.

It's happening in government.

So far, it's mainly happening on the state and local level, where 611,000 jobs have disappeared since 2009. Federal retirements are increasing and not all those people are being replaced.

Washington D.C., in short, is entering a recession.

Again, no politics. How do you play this trend, which looks certain to continue regardless of how this year's elections go.

One way is to stay bearish on any stocks that do a substantial part of their business with government, like Computer Sciences Corp. (CSC). CSC fell off a cliff starting in 2011, and is now trading for less than half the $54/share it was worth in February 2011.

Not to say CSC has done anything wrong. The company is a leader in the federal government's move to "cloud" computing. It recognized its problems by bringing in turnaround expert Mike Lawrie as CEO.

The stock gained 20% on Lawrie's hiring, and I interviewed him several times as part of my open source beat at ZDNet, when he was running Misys. But this is not a problem one man can solve, unless he can pull a buyer for his company from a back pocket. HP (NYSE:HPQ)? Dell (DELL)? IBM (NYSE:IBM), maybe?

Look at ENR's list of the top 400 government contractors. It's a story of contraction, revenues falling 10% year-over-year. "There is precious little new work," concludes Washington Technology.

So my investment advice is that you should avoid the contractors in general for now. The less a company is linked to government spending, the better it is as a potential investment. Make that your first cut in examining new stock purchases this year, and you are unlikely to go wrong.

Disclosure: I am long IBM.