Beyond Dividends: 10 Stocks for a Deleveraging, Downshifting Economy

If the worst-case scenario happens -- European countries default, American consumers spend less, and there's a global economic contraction -- will any companies survive? Surely, many will; in fact, some will thrive. Today, I'm going to give you the names of 10 I think could do particularly well.

And if you think that investing heavily in dividend-paying companies is a good idea in uncertain times, you're right. But, that's not what this article is about.

Instead, I'm taking a more fundamental view: looking for four key characteristics a company would need to have in an economy where citizens are simultaneously deleveraging and downshifting.

Not the boom-time economy of yesteryear
Sometimes, after reading what our award-winning Fool Morgan Housel thinks, things seem so much clearer. His recent piece on why the recovery is so slow is one such piece.

In short, Morgan convincingly shows that when growth is primarily fueled by debt (easy credit), the debt eventually has to be paid back. And when that day comes, growth screeches to a halt. That's what we're experiencing now:

The recovery isn't slow because of regulation, taxes, health-care reform, or some vague "uncertainty" boogeyman. It's slow because consumers are still deleveraging. And it's not going to get any better until they're done.

As this deleveraging occurs, there's also a simultaneous trend taking hold. It's called downshifting: a conscious effort to spend less, to work less, and to stop trying to keep up with the Joneses. In her recent book, Plenitude: The New Economics of True Wealth, Boston College professor Juliet Schor explores the upside of downshifting.

"People who make these changes report being very satisfied," Schor reports, explaining that 83% reported enjoying their downshifted life more than the standard 40-hour work week.

While I'm a big supporter of downshifting, this highlights a big problem with our economy: A large part of it is based on the premise that we'll want to keep up with the Joneses. So, is downshifting going to be bad for the economy?

That's a tough question to quantify, but Schor offers four traits that successful companies will share if downshifting really takes hold.

1. Products must be high quality
If consumers are going to be buying less, they're going to make sure they're getting the most bang for their buck. This means offering high-quality products that can stand the test of time.

This is good news for the likes of Costco (Nasdaq: COST  ) and Coach (NYSE: COH  ) , two companies that Consumer Reports has identified as being perceived to offer the highest quality products in their respective fields.

In an odd twist, this should also be a boon to Whole Foods (Nasdaq: WFM  ) . Though their products actually last a shorter time than processed foods, that's because they're natural and healthier for consumers. The longevity the company's products offer isn't in the food itself, but rather the health of those who eat it.

2. Multifunctionality
By reducing the volume of goods purchased, we'll need the things we do buy to serve multiple functions. If you're searching for good examples of this, look no further than our major technology companies. Apple (Nasdaq: AAPL  ) , Google, and Amazon.com all have their hands in so many fields that they are difficult to classify.

Think about it: With an Apple or Android smartphone, you have telephony, messaging, Internet access, an atlas, a GPS system -- the list could go on and on. And with Amazon entering the tablet wars, it deserves a spot here as well. Who knows what these gadgets will do in a few years?

3. Customization
We'll need to tailor the smaller number of things we're buying to meet our customized needs. Schor specifically points to fabrication laboratories as vital to providing customized solutions to meet people's needs.

What are fabrication labs? The short answer is that they are places equipped with 3-D printers. Fool co-founder David Gardner has singled out this revolutionary technology as well. "Fab labs have been used to make a wide variety of things ... This includes simple items such as alarm clocks and toasters as well as furniture and clothing," Schor says.

The two companies at the cutting edge of this technology -- 3D Systems (NYSE: DDD  ) and Stratasys (Nasdaq: SSYS  ) -- stand to be the primary beneficiaries of a movement toward fab labs.

4. A culture of sharing
Does every individual really need a car? Will every well-to-do family have enough cash for a vacation home? In both cases, the assets being bought are grossly underutilized, often sitting empty or unused.

In this economy, such purchases can seem especially wasteful. That's why companies like car-sharing specialist Zipcar (NYSE: ZIP  ) and home-sharing expert HomeAway offer unique value propositions to customers. You can get the convenience of cars and vacation homes when you want them and avoid the full costs -- financial or otherwise -- of outright ownership.

The bottom line
Hopefully, these 10 companies -- and the reasoning that lies behind their selection -- will help you as you determine where to place your investment dollars. As I said, dividend stocks are certainly a wise choice as well, but they aren't the only game in town.

If you'd like one more idea for a stock that should also do well in a deleveraging, downshifting economy, I'd like to offer you access to "The Motley Fool's Top Stock for 2012." Inside, you'll get the name of and the details about a company that promises to be the Costco of Central and South America. The report is yours today, absolutely free!

Fool contributor Brian Stoffel owns shares of Costco, Whole Foods, Apple, Google, Amazon and Zipcar. You can follow him on Twitter at @TMFStoffel.

The Motley Fool owns shares of 3D Systems, Zipcar, Apple, Coach, Whole Foods Market, Costco Wholesale, and Google. Motley Fool newsletter services have recommended buying shares of HomeAway, Coach, Amazon.com, Stratasys, Zipcar, Costco Wholesale, Whole Foods Market, Google, and Apple, and creating a bull call spread position in Apple. 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 (5) | Recommend This Article (35)

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 December 03, 2011, at 1:07 PM, markdgls wrote:

    Booze, Food, and Entertainment. That's what really survived the Depression in the '30s. That's what I am betting on.

  • Report this Comment On December 03, 2011, at 3:06 PM, TMFCheesehead wrote:

    @mark-

    Agreed, with a caveat.

    Booze & Food=WFM and COST.

    Entertainment=AAPL, AMZN, GOOG

    And while half of the argument is about recessionary conditions (deleveraging), the other half is about voluntary downshifting, which is very different.

    Brian Stoffel

  • Report this Comment On December 03, 2011, at 8:43 PM, great08 wrote:

    I always love reading these different points of views you guys have here. It is a great tool for opening the mind. That being said I have been thinking about the great depression also when looking @ stocks lately too.

    Food/entertainment/alchohol... and energy. Things pple seem to not be able to live without(especially food! lol).

    I am liking places with well known foods that are afforable, have growth, and dividends.

    Cloud computing entertainment has my eye bigtime.

  • Report this Comment On December 04, 2011, at 12:52 AM, xetn wrote:

    I think the following explains the situation much better that what has been presented so far:

    http://blog.mises.org/19608/the-austrian-theory-of-the-busin...

  • Report this Comment On December 07, 2011, at 12:43 PM, Purpleboarder wrote:

    I'll take it a step further... The following are all needed or expected, and pay decent dividends while you wait...Aaaaaand, they'll be around for a really, really, long time. Set up yer 'drippy DRIPS'!

    Electricity/Gas > EXC, SO, NGG

    Communication > T, VZ

    Heath > JNJ

    Food > MCD, KO

    Sin > DEO, PM, MO

    Death > STON

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