How to Profit From Pessimism

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So the stock market has been in a freefall lately. Investors -- and noninvestors, too -- are panicking. Will society as we know it end? Probably not. Will everything stay the same? Probably not. Can we make some money in this volatile, mostly negative market? We sure can!

The trick is finding those companies that are resistant to market swings. Traditional "defensive" companies fit that bill -- companies whose products you'll likely keep buying no matter what the economy does. I'm speaking here of your medications, your beers, and your Egg McMuffin breakfasts, for example. So defensive companies would include Merck (NYSE: MRK), Anheuser-Busch (NYSE: BUD), and McDonald's (NYSE: MCD).

Look for trends
Of course, each time of crisis is a little different, and each one offers some special investment opportunities, if we can spot them in time. This time, for example, banks have been in trouble. With people losing faith in banks, it's not surprising that sales of safes and personal vaults have ... vaulted. One safemaker in England reports sales up 25% in just the past month. I suspect that sales of Sentry Safe safes (alas, it's a private company!) at Home Depot (NYSE: HD) and Lowe's (NYSE: LOW) have been doing well. (And if you see safes suddenly featured in the stores, now you'll know why.)

Meanwhile, the ongoing prohibitive cost of fuel has, well, fueled an interest in motorcycles and scooters. The Vectrix scooter company, based in Middletown, R.I., has seen its annual sales jump from $800,000 in 2007 to $6.7 million in fiscal 2008. We can expect sales of hybrid cars to keep rising, too.

Those willing to take an extremely pessimistic view of our future are pumping up sales of other kinds of products. What would you fill your bomb shelter (or, OK, your pantry) with, in case there's more trouble? Campbell Soup (NYSE: CPB) offerings, of course!

What else might you want, if society falls apart? A weapon? An effective but usually non-lethal one? Perhaps a stun gun from Taser International (Nasdaq: TASR)? Well, Campbell Soup has seen its stock stay relatively flat in the past year -- an impressive achievement, given the market's plunge. Taser shares nearly doubled last year, but have fallen sharply this year, in part because of legal woes.

Finally, in these times, you may want to seek out stocks with reliable and sizable dividends that you think can survive the survivalist mentality. A plunging market really reinforces the value of getting money in hand versus paper gains -- gains that can evaporate in days.