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Stock Picks to Survive the Market’s Next Slaughter - CPL, TU, CMCSA, STZ, SYY, CCU

With each passing day, it seems like the market continues to stumble towards the double-dip recession (and accompanying double-dip bear market) that was merely an academic talking point a few weeks ago. While the nastiest and most severe wave of the recession phase is - we believe - behind us, another round of weakness is nothing you’ll want to just wait out.

So what’s a ‘long-only’ investor to do, if he/she doesn’t want to tiptoe into the dangerous world of inverse ETFs or the tricky world of options and futures? There is some good news now that we couldn’t have talked about in 2008…. pockets of strength, where stocks seem poised to not only resist a bearish tide, but ready to keep climbing that wall of adversity.

While it will still take laser-precise navigation to work around the market’s land mines, here are few defensive picks that may just save your portfolio in the event of a double-dip…. or even just tepidness.

Drink Up

It probably should be cyclical, but beer and spirits have proven to be pretty darn recession-resistant…. if not from a bar & restaurant perspective, at least from the brewers’ and distillers’ perspective.

Take Molson Coors (NYSE:TAP) for instance - it barely flinched when the economy was at its worst in 2008, only seeing it annual earnings (per share) dip from $2.79 in 2007, to $2.77 in 2008. And, it caught up real quick with 2009’s earnings of $3.80 per share.  The same ‘barely down/easily up’ action applies to Boston Beer Company (NYSE:SAM). In good or bad times, the companies did ok.

The ‘best of breed’ from the group, however, isn’t a brewer at all though… it’s a distiller - Constellation Brands (NYSE:STZ). It also survived the recession with flying colors, watching its operating earnings fall from $1.67 in 2007 to $1.45 in 2008. In 2009, the company was back in full swing with an operating EPS of $1.60. 2010 is promising to be even better.

Bottom line? Consumers drink to celebrate when times are good, and apparently drink to ease the pain when times are tough.

Ya’ Gotta’ Eat

The average stock in the food distributor group is up 36.3% for the last 12 months, and as part of the consumer staples business, the demand for its products remains pretty consistent in any economic environment.

The ideal food play is probably Sysco Corp. (NYSE: SYY). It’s got P/E ratios consistently in the mid-teens, which isn’t stellar, but what it lacks in value it more than makes up for with reliable performance from its stock, managing to shrug off any of the market’s curve balls that cause other stocks to whiff.


There’s just something about a recurring revenue model.

The easy play here is Comcast Corp. (Nasdaq: CMCSA), with a beta of 0.91 (the lack of volatility mostly stems from the lack of nasty pullbacks), four straight quarters of topped estimates (in fact, we’ve seen three straight years of top and bottom line increases), and a stock that’s still trucking. This year’s strong interest in World Cup Soccer - thank you France and inconsistent reffing - can only help.

The Other Way to Avoid the U.S. Market’s Problems

While all markets have been volatile, the developed markets of the U.S. and its economic peers/partners have been far more volatile than emerging markets. Go there (proverbially), and you may find less-stressful equities.

Oh, you may have to think way outside the box…. way outside it, in fact, given how tough it can be to find a stock that isn’t closely-linked to the United States or its trade partners (or its consumers). They are out there though, and more importantly, their stocks are gaining.

Take Compania Cervecerias Unidas SA (NYSE: CCU) for example. Another brewer? Yes - it’s the best of both strategies.

Cervecerias Unidas errantly lacks a decent analyst following. If the quality of coverage were better, you would know that it’s spending over $100 million to expand its capacity in 2010. You might also know that CCU didn’t tumble like the rest of the market did in May, and it has already recovered what little ground was lost.

Or there’s Telus Corp. (NYSE: TU) - the Canadian telco with a big dividend yield of 5.6%, and a stock chart that’s shrugged off the surrounding weakness to gain 14% this year. Momentum can be huge in a nasty environment.

Or, how about an obscure Brazilian utility stock that posted 82% increase in last quarter’s earnings after a 65% increase in the prior quarter’s earnings? That’s CPFL Energia (NYSE:CPL), which snapped a five-quarter streak of declining profits two quarters ago.

The 7.0% dividend yield or so is solid enough on its own, but when you factor in that Brazil one of the fastest growing countries in the world and wasn’t hit as hard as the rest of the world was in the recession (meaning its recovery is taking shape much faster and firmer than in other countries) CPFL Energia looks even more attractive.

Earnings growth should continue to climb firmly, as the energy needs of Brazil’s brisk economy swell at a much faster rate than in the U.S., Europe, or Asia.

More Than One Thing In Common

These stocks weren’t picked out of thin air, as you probably realize. What you may not realize, however, is that they were not picked simply based on fundamentals - each of them have been consistent winners of late, and part of groups that have also been consistent winners or survivors….. the tailwind that means far more than most investors recognize.

See, a consistency in gains - or lack thereof - can make a surprising difference between winning and losing.

Certainly that’s to imply volatile stocks can’t or won’t outperform the market - they can, and do. It’s just that volatile stocks are tough to own because they have a way of mentally slinging investors around. Buying at highs and selling at lows are just two of the likely headaches fostered by a wild equity holding. Remember though, it takes a 100% gain to recoup a 50% dip in your portfolio. So, just being able to hold a stock (or several of them) through a rough patch means you’re ahead of the game at the point in time when stocks really start to shine again.

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James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.