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Editor's Choice

Michael Brush

Company Focus5/6/2009 12:01 AM ET

12 stocks for a slow-moving recovery

It seems the bounce-back has begun, but the economy won't really get cooking for some time. These stocks should race ahead of the pack.

By Michael Brush
MSN Money

From brainy Ph.D. economists on Wall Street to the guy uptown who cuts what's left of my hair, a broad range of market pundits agree:

The comeback has begun.

But while the economy is improving, we're not shooting back to the rollicking days of the bubble years.

Loans, the rocket fuel of capitalism, will remain hard to get for some time. Money lenders, business leaders and consumers are going to remain cautious.

The most probable scenario now is what I'll call a slow-burn recovery. "People are retrenching, and it is not going to turn around quickly. We have gutted this economy," says Jack Adamo, who pens Insiders Plus, a top-ranked stock newsletter.

Mark Zandi, the chief economist for Moody's Economy.com, predicts a flat economy next year and moderate growth in 2011. We won't see full employment until the second half of 2013, Zandi says.

In a slow-burn recovery, strictly defensive stocks selling day-to-day necessities, such as Procter & Gamble (PG, news, msgs), will be a drag on your portfolio. Nor do you want too many hypercyclical stocks, in areas like tech, that outshine the most during times of red-hot economic growth, something we won't see.

Instead, you need to pick companies with qualities that'll let them rise fast despite a slow-burn recovery. These include:

  • Companies that offer cheap entertainment, such as video-game retailer GameStop (GME, news, msgs).

  • Those that control their own destinies, like Lockheed Martin (LMT, news, msgs).

  • High-yield plays like Annaly Capital Management (NLYBP, news, msgs).

  • Education plays that benefit as people retool for a tougher labor market, like Corinthian Colleges (COCO, news, msgs).

Here's a closer look at stocks for a slow-burn recovery.

Cheap thrills

Despite the depressing side of life during a recession, we haven't turned into a nation of Debbie Downers and Buddhist minimalists. Americans like to have fun. We just want to pay less for it.

"People are looking for cheaper entertainment," says fund manager Don Hodges of the Hodges Fund (HDPMX). Two stock plays on this trend are GameStop and Coinstar (CSTR, news, msgs), he says.

GameStop shows that video games aren't just for pimply kids who need to get lives. Thanks to Wii Sports, Halo, Mario and other hit games, Americans of virtually all ages spend $22 billion a year to give their thumbs a workout on more than 185 million consoles. The average player in the U.S. is now 35 years old; 25% of people over 50 play video games. And 40% of gamers are female.

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Jim Jubak © MSN Money
Have we hit a bottom yet?
Why is it so hard to tell whether the economy and the stock market have bottomed? Because we don't know how many more time bombs are ticking away on bank balance sheets, MSN Money's Jim Jubak says. (April 16)

Games seem to be a popular escape during the economic pullback; fourth-quarter sales at the GameStop retail chain shot up 22% to $3.5 billion. "Video games are viewed as relatively cheap entertainment," GameStop chief Daniel DeMatteo said in the company's most recent conference call.

Recession-pinched gamers are fans of GameStop partly because it sells used games and accepts used games for credit toward purchases. Secondhand games generate more than 40% of GameStop's profits. The chain sells consoles and games at more than 6,200 stores, mainly in the U.S. But it's also in Canada, Europe and Australia. Digital distribution of games looms as a risk to GameStop, but that's still far off, Morningstar analyst Sunit Gogia says.

Continued: Pennies add up for Coinstar

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Wednesday, May 06, 2009 6:50:47 AM

I think everyone is way early on this recovery. The evidence is people like Warren Buffet are now joining in...way late to the party. Up 35% already from the low on the S&P most of the "market" recovery is already done.

 

Anyone see the news from BAC today? These losses aren't going to stop anytime soon, the housing market has not bottomed yet. Median home prices have not come down far enough yet...they have to get to a 150k level before real value is there for median income households.

 

The other key factor no one is looking at is what happens with 6.3 million people collecting unemployment are no longer collecting...they won't be able to find jobs, and without unemployment checks this almost certainly means another rash of consumer retrenchment later this year.

Wednesday, May 06, 2009 6:56:23 AM

Anyone see the ADP numbers this morning? I swear if I had a dime for everytime these guys were wrong I'd be a millionare.

 

They say 491,000 job loss (which the market is viewing as positive in light of the increasing job losses we have had on a monthly basis)

Ignoring the fact that ADP hasn't been right this entire recession, their report has always been too optimistic. And last month was revised upward, to 708k official jobs lost in March.

 

The government report on Friday is going to be far worse than 491k. I just think the market is failing to realize right now we can't have significant recovery until consumers can spend again, and that's years away. With continued huge job losses consumer spending will continue to decrease well into next year.

Wednesday, May 06, 2009 8:33:26 AM

  Well let's look at some facts that strangely enough aren't getting much media coverage:  1.  one out of every three home owners owes more on their mortgage than their home is worth; 2.  The Federal Reserve is now buying up most of the national debt because foreign investor's -- such as China -- are no longer purchasing it;  3. Unemployment is expected to increase over the next year; Moreover when  these unemployed do find jobs again they will be at lower salaries; 4. The federal government is now the largest source of income for most of the states in the Union; 5.  The losses the Banks have due commercial real estate loans and credit card debt hasn't been computed yet in their total losses.  Stop and think about the ramifications of those 5 facts I just mentioned; Then ask yourself what these so-called "brainy" PHD pundits are basing their statements on when they say the economy is recovering?   

 

 

Wednesday, May 06, 2009 11:54:18 AM

I agree that these early recovery statements have no basis in fact. Not only is the recovery going to be prolonged for years but the idea of a consumer based economy is a joke. The velocity of money is based on the same dollars being spent over and over - what they forget to tell you is that each time the dollars 'go around' the taxmen (plural) take their bite.

If we don't start building products again you can count on the extinction of our capitalistic way of life!

 

Hello Socialism

Wednesday, May 06, 2009 1:31:05 PM
I would rather invest in FEED, SEED, GRO, CMED, AOB, and LUK.
Wednesday, May 06, 2009 2:55:33 PM
I love that the media is still and always going to be there to say what the rich owners and powerful people of the world want them to say, (because they own them) and continuisly talking out of their @$$es about how things are turning around, then monitoring the feed back by us the public,... to see if we are any where close to being fooled into (getting over our fears) and strat living like we all have the money to burn,..(Credit @ 23 % interest),... every American knows how our parents did it,... it's called sacrific and living within your means ,... but our wonderful money hungry commercialized consumerizum society leaders say inall , in every commercial you see on t.v and hear on the radio,.... they just want you to spend, spend, spend,....use it once and trow it away,... where is true leadership ? what have we allowed this country to become,..one big commercial ..!!!!  all you wives have to stop spending your husbands hard earned money,,,, and start saving it for days like today,... Family values are what matter most,... not that trip to Disney World    
Wednesday, May 06, 2009 3:44:17 PM
Media trying to create a self-fulfilling prophesy. We have recovered as far as we can but strong possibility that the market will sell off when predictions don't work out in short-term. Fact is consumers do not have or make enough money to drive the capitalist system any longer without running up hugh debt, which the banks will not allow any longer. This leaves the problem squarely in the lap of the federal gov't which is running up debt so high so fast it begs the question...how in heck will they be able to reduce it in the future. Raising taxes simply takes money out of circulation...bad idea in rough economic times. All these short-term measures will come back to haunt all of us. High unemployment going forward with increased taxes and high national debt doesn't add up to a strong recovery. Add the fact that all those soon to retire boomers may be permanently out of the market or have greatly reduced their exposure. The idea that boomers will delay retirement and continue to work is unrealistic simply because they will have no choice. Its called age discrimination and it is prevalent despite the law.
Wednesday, May 06, 2009 8:47:29 PM
I really disagree with his Proctor and Gamble comment. It might not make you a quick buck but it will recover eventually. Also, it's good to buy it at such a low price. P&G has a great dividend and a strong history of success.
Thursday, May 07, 2009 6:22:19 AM

The XLF has risen 15% in 3 days...

 

It's absolute insanity on the market today. Back in early March I thought the market *might* stage a run back to 200-day MA, but it's become way overbought.

 

Especially on the financial side. We've seen it time and time again, whoever led the last bull market won't lead in the next one. And financials are no exception, they have permenantly impaired revenue streams that will never, ever return.

 

The most concerning aspect of the run is we've had one down week, from 869 to 866, which is barely a loss. Otherwise it's been a straight run to the top, with no pull back at all.

 

7 out of the last 8 bears have retested their final lows within 2-4 months of hitting that area. We're going to see 667 again on the S&P, it's just a matter of time.

 

1) Consumption is not going to return anywhere near the level it was at for maybe 5 years, possibly longer.

2) People are not going to debt spend

3) Unemployment is going to remain really high

4) Housing market is not at a bottom yet

Friday, May 08, 2009 3:31:21 PM

Hey, CoolSoupy...

"If we don't start building products again you can count on our..."

Boy, did you hit the nail on the head!

And that is precisely what this round of devaluation has been all about. That's right, what we have recently experienced has been a drop in asset values with respect to the value of similar assets around the globe.

Asset values, homes, factories, whatever, are so expensive here that this drop in values was inevitible - and will occur again.

You are 100% spot on in thinking that, as people return to work their wages will be reduced. Less income, less outgo, and prices will have to come down even further. Consumerism in the country is undoubtedly going to change. Our way of life is going to change.

This is not over. This was a first step. There are more drops to come.

Until we can build a car plant here in the US for what we can build one for in S Korea (as an example) the value of our assets, and our wages, and our benefits, will continue to DEFLATE.

This is not over - what we are experiencing is just the first step.

This is not something that is going to happen right away (this year or next). What we will see is some market and value advance for a while, then boom, down we go... another recovery and regain a bit of that loss in value, then boom, another leg down. Each drop further down than the previous bottom.

A couple of decades. This nation is going to look quite different.

Be prepared to hand your house down to one of your offspring... 'cause you ain't gonna sell it for what you paid it for!

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