Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Don't Buy These Stocks Now

Fears of recession have many investors cowering in the corner. But if you're thinking about making a move toward buying defensive stocks, think again -- you don't want to be left holding the bag when the recovery comes and those stocks go out of favor.

Successful investors have to stay one step ahead of conventional thinking. What that means right now is that while many are preparing for a financial meltdown, you have to look forward. Your investing decisions have to anticipate the eventual recovery.

Profiting from the business cycle
Historically, the economy's growth has followed cycles of expansion and recession. In the stock market, many see certain sectors as being particularly attractive at specific times in the business cycle.

So for instance, when an economic expansion slows down and a recession appears imminent, many investors flock to stocks they think are recession-proof -- stocks in industries like health care and consumer staples, whose businesses sell necessities and therefore hold up better in an economic downturn.

These defensive stocks make sense -- if you buy them before everyone starts thinking about a recession. But after months of anticipating the slowdown, many defensive stocks have gotten a lot more expensive. Take a look at some popular defensive plays and how they've performed over the past three months:


3-Month Return

Hershey (NYSE: HSY  )


Wyeth (NYSE: WYE  )


Kohl's (NYSE: KSS  )


Johnson & Johnson (NYSE: JNJ  )


Sure, companies that sell basic necessities can count on a steady flow of sales even if a recession comes. That could help keep their stock prices up. But if you're thinking about buying them now, you'll pay a premium price for that protection -- without any guarantees that it'll actually work.

Fight the next war
Instead of worrying about an imminent recession that may never actually come to pass, remember your long-term investing focus. For instance, recession fears haven't been kind in recent months to retailers, especially ones like electronics seller Best Buy (NYSE: BBY  ) , which relies heavily on selling big-ticket items. Once the economy improves, though, consumers will start buying big-ticket items again, and retailers should see their lot improve. By investing now and beating the crowd, you can buy in at an attractive price. Then you'll profit when waves of other investors discover the next trend.

Similarly, homebuilders like Pulte Homes (NYSE: PHM  ) and Centex (NYSE: CTX  ) are suffering from huge inventories and slow demand. But the housing market will eventually bottom out, and investors who are early to the party will reap a lot more of the benefits.

Being a smart investor means staying ahead of the crowd. With many still fearful of economic problems down the road, an astute long-term investor can find bargains in the sectors that will do best once the economy gets back on track.

For more on investing in a recession, read about:

Best Buy is a recommendation of Motley Fool Stock Advisor. This investing newsletter focuses on long-term stock ideas that will do well through recessions and recoveries alike. Find out more with a free 30-day trial.

Fool contributor Dan Caplinger always tries to beat the crowd. He doesn't own shares of the companies mentioned in this article. The Fool owns shares of Best Buy, which is also an Inside Value recommendation. Johnson & Johnson is an Income Investor pick. The Fool's disclosure policy jumped off the bandwagon a long time ago.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 639621, ~/Articles/ArticleHandler.aspx, 10/23/2016 2:24:14 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:03 PM
BBY $39.46 Down -0.02 -0.05%
Best Buy CAPS Rating: *
CTX $11.95 Down +0.00 +0.00%
Centex Corp CAPS Rating: *
HSY $95.36 Up +0.24 +0.25%
The Hershey Compan… CAPS Rating: ***
JNJ $113.44 Down -1.43 -1.24%
Johnson and Johnso… CAPS Rating: ****
KSS $45.05 Up +1.03 +2.34%
Kohl's CAPS Rating: **
PHM $19.06 Down -0.14 -0.73%
PulteGroup CAPS Rating: ***
WYE.DL $0.00 Down +0.00 +0.00%
Wyeth CAPS Rating: ***