5 Recession Stocks and 1 Industry to Avoid This Time Around

Had the market free fall of 2008 and 2009 not occurred, we might very well have viewed the past two months' market volatility with far more alarm. The fact of the matter remains, however, that unemployment has remained alarmingly high, and there are signs that our economic recovery is grinding to a crawl.

With uncertainty in the air, I went looking for the kinds of stocks that could do well in such an environment. Specifically, I went searching for stocks that either help consumers save money or benefit from low interest rates. My search uncovered five stocks worthy of your consideration and one industry that did well during the last market swoon that you should avoid entirely.

Mom always said it's best to share
Few expenditures take a bigger bite out of your paycheck than a car. Beyond the regular payments, you need to factor in gas, insurance, and maintenance. And if you're buying a car new, your asset depreciated by at least 10% the moment it left the lot.

It's easy to see why one would avoid the purchase entirely, especially now. That's exactly what my wife and I plan to do when we move to Chicago next month. Instead, we'll be locating ourselves right next to one of the city's many Zipcar (NYSE: ZIP  ) locations.

For just $60 per year and $7.75 an hour when we use a car during the week, we'll have all our transportation needs met for a fraction of the cost of owning a car. I'm betting we're not the only urban dwellers taking advantage of this value proposition.

No cable?
We'll also be cutting the cord with our cable as well come moving time. Instead of paying $100 or more per month for Comcast's Xfinity, we're going back to the bunny ears for news and sports. That'll be supplemented by Netflix's (Nasdaq: NFLX  ) streaming-only option for $7.99 per month, as well as the occasional trip to Coinstar's (Nasdaq: CSTR  ) Redbox machines for $1 rentals on newly released movies. I figure we'll rent about three movies per month, so that brings our grand total to less than $15, a huge savings over cable!

I realize customers and investors aren't too happy with Netflix right now, but I believe the company has smart management that'll continue to push across the globe while signing quality content deals. Furthermore, I think consumers will wake up to the value proposition Netflix really offers at $7.99 once they get a chance to blow off some steam over the company's price hike.

Deals, deals, deals galore!
Much has been made over Groupon's on-again, off-again stance with its IPO, but I think investors are missing a real winner in the deals scene: Travelzoo (Nasdaq: TZOO  ) . Should the economy continue to sputter, Travelzoo's deals (both their Travel Deals and Local Deals) will be appealing to both cash-strapped consumers and desperate vendors.

Consumers, taking extra care not to splurge on vacation, will jump on opportunities like this week's offer for an all-inclusive resort in the Dominican Republic for just $11 per day. Vendors, on the other hand, eager to bring in any revenue they can, will turn to Travelzoo and its high-income subscribers to pick up the sales slack ... and gain some return customers in the process.

Free money? Don't mind if I do!
Some residential real-estate investment trusts make their money from low interest rates. Chief among them is Annaly Capital Management (NYSE: NLY  ) .

As Fool Ilan Moscovitz explains: "Annaly's business model seems complicated, but it's actually pretty straightforward: Imagine if you could borrow $10,000 at 2%, lend it at 4% to a guaranteed borrower, and keep the $200 difference." Annaly-managed Chimera (NYSE: CIM  ) also benefits from such a structure, sans the guaranteed borrower part.

By now it's pretty clear that so long as the economic recovery is stalling, Federal Reserve Chairman Ben Bernanke won't be moving the interest rate from basically zero. That's good news to Annaly and Chimera, as well as investors in these companies.

One sector to avoid
As promised, I'm also offering up one sector -- which did very well during the last recession -- to avoid if things head south again: for-profit education. Though it's not fair to paint with too wide a brush (I picked my favorite in the sector this summer), in the interest of limited space, let's use Corinthian Colleges (Nasdaq: COCO  ) as an example.

Between March 2008 and March 2009 (the market bottom), Corinthian's stock rose almost 150%. As more and more working-age folks found themselves out of work, going back to school to further one's education seemed like a wise use of time.

Things, however, have changed since then. Recruiters for colleges like Corinthian are no longer compensated on a commission basis, and they are barred from using misleading facts while wooing students to sign on.

And even if these rules hadn't gone into effect, the schools won't get nearly as many to fall for their ruse this time around: Corinthian -- the worst in the bunch -- had 38.1% of its students defaulting on their loans as of this summer.

Worried about your investments?
If the recent market troubles have you worried, I hope I've presented some ideas worth investigating. In fact, I own shares of Zipcar, Netflix, and Travelzoo.

If you're skeptical of my choices, however, I won't take offense. Instead, I think The Motley Fool's special free report "Too Small to Fail: 2 Small Caps the Government Won't Let Go Broke" is definitely worth a look. Inside, you'll get details about two small-cap stocks that have solid deals with the government and have the potential to deliver multibagger returns. The report is yours today, absolutely free!

Fool contributor Brian Stoffel owns shares of Netflix, Zipcar, and Travelzoo. You can follow him on Twitter at @TMFStoffel. The Motley Fool owns shares of Annaly Capital Management, Zipcar, and Chimera Investment. Motley Fool newsletter services have recommended buying shares of Netflix, Travelzoo, and Zipcar, and buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (26)

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.

  • Report this Comment On September 16, 2011, at 4:32 PM, stockton32 wrote:

    Brian, I'm one of these recruiters that you describe who happens to work for Corinthian. I "really appreciate" the fact that you insinuate we recruiters used to lie, in order to attract students, and now we're prohibited from doing so because of government regulation. I am appauled by the tone of your description of Corithian, as if we're some evil organization out to mislead our consumers. We've been using the same Admissions process for years and so I invite you to come into one of our campuses, look into one of our programs, and then make a more educated evaluation of what we do for individuals. Or, better yet, time your visit to come to one of our graduations. Or, stop into one of our Career Services offices to see what we do to make our students successfull professionally. In the end, we change students' lives, for the better, every day.

  • Report this Comment On September 16, 2011, at 11:41 PM, TMFCheesehead wrote:

    stockton32-

    Thank you for offering your perspective, but I would definitely have to disagree with assessment of the situation. In addition to being a writer and investor, I spent the last five years teaching/leading at a KIPP school in inner-city DC, and have seen some of the consequences of their having used for-profit options.

    Putting my (and your) personal experiences aside, I don't see how you can say that you "change students' lives, for the better" when almost 40% of your students have defaulted on their loans. How in the world is this helping them?

    For the facts, check out the list here: http://federalstudentaid.ed.gov/datacenter/cohort.html **Click "Go" and it will take you there

    For even more damning proof, check out this video which, I believe, includes a visit to a COCO college: http://www.gao.gov/products/GAO-10-948T?action=play

    Brian Stoffel

  • Report this Comment On September 18, 2011, at 1:08 PM, donotbefoolish wrote:

    NFLX has a particular problem that has nothing to do with subscription price. You can't essentially double your price trying to force folks into streaming when the content is not up to snuff. NFLX has done admirably with there logistics, but the plain fact is customers who were getting streaming and delivery are not interested in paying double unless there is a content boost.

  • Report this Comment On September 19, 2011, at 5:28 PM, Brent2223 wrote:

    I'm also a Zipcar user, and from a consumer perspective I love it. However, it's so good I worry about how they're going to turn a profit in the long term. It's great at startup with a stable of shiny new and reliable cars, but the key to their success will be inventory management. If they don't keep up their inventory, customers may not stay satisfied and leave. If they do manage to keep rotating inventory to keep it fresh, I hope they have an aggressive amortization policy cause unloading late model daily rentals won't be fun. Most companies drastically under estimate auto residual risk, so things look great until you start to try to sell your inventory. Unless they have buyback agreements with the manufacturers to remove the residual risk (doubtful, but some manufacturers seem okay with trading off a loss 5 years from now for a sale today....) I'd be cautious of the stock.

  • Report this Comment On September 19, 2011, at 6:23 PM, sentgj wrote:

    Brian,

    How could you turn to "bunny ears" for Sports. Most sports are only served on cable/Satellite nowadays. That is my chief concern with your article. I'm good with your financial advice.

  • Report this Comment On September 19, 2011, at 6:34 PM, emersonbiggins61 wrote:

    Today the CEO of NFLX apologized to shareholders and customers. They lost one million customers since the change. Now he says they are going to split the company in two. Two bills. Two web sites. Too complicated. Customers will be leaving in droves.

    Blockbuster is already moving aggressively after Starz announced it is parting ways with NFLX. They were getting a lot of their movie inventory from Strarz.

    Looks like stormy seas for NFLX in my opinion.

  • Report this Comment On September 19, 2011, at 7:31 PM, TMFCheesehead wrote:

    Touche sentgj-

    I actually have the mlb package to watch my Brewers, and thanks to their recent excellence, the Packers are usually on half of the time. The other half I don't mind making a trip to the corner bar.

    Brian Stoffel

  • Report this Comment On September 20, 2011, at 5:28 PM, stockton32 wrote:

    Brian,

    Corinthian recruiter here again. Did the GAO have to revise their report, for the first time ever, in regards to this investigation? Also, anytime you end a statement with "I believe" (your reference to a video that actually doesn't show a visit to COCO), it calls into question the validity of anything else you say. As for default rates, the statistics I won't argue with you, but the default rate has to do more with the demographic of the student we try to help rather than the quality of education they receive. Invitation is still open to visit one of our campuses...

  • Report this Comment On September 20, 2011, at 11:13 PM, brewersfan81 wrote:

    stockton32-

    Any offices in the Chicago/midwest area? Also, wouldn't you say that regardless of the demographics, these students are now worse off for having attended COCO schools than they were before?

  • Report this Comment On September 21, 2011, at 8:57 AM, TMFCheesehead wrote:

    Sorry, stockton32, I have two accounts. brewersfan81 is also me.

    Brian Stoffel

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