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.
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Instead, you need to pick companies with qualities that'll let them rise fast despite a slow-burn recovery. These include:
- Reliable performers such as toolmaker Snap-on (SNA, news, msgs) and uniform seller Cintas (CTAS, 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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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