1 Stock to Rule the Recession

"As long as there are problems to be solved, there will be innovators to solve them. Companies that use the current tough times as an excuse to de-emphasize innovation are going to severely regret it."
– Scott Anthony

At first, the idea sounds counterintuitive: Recessions actually offer disruptive companies their best opportunities to dominate. Companies tighten their belts, cash gets hoarded, consumers rein in their spending -- but for the disruptors, it's showtime. That's the chief thesis of Scott Anthony, author of The Silver Lining: An Innovation Playbook for Uncertain Times.

Look beyond the surface
Unusual as it may be, the theory appears to hold water. During economic downturns, Anthony argues, an abundance of scarcity forces companies to shed old, outdated business models and develop and produce new ideas. With the help of technology, innovation can occur at lightning speed. Just think, Anthony writes, how quickly Facebook went from a college dorm-room project to a global enterprise.

He also notes that many great companies, such as General Electric (NYSE: GE  ) , Walt Disney (NYSE: DIS  ) , and Electronic Arts (Nasdaq: ERTS  ) were all formed during times of recession.

In fact, more recently, harsh economic times didn't seem to stop IBM (NYSE: IBM  ) from popularizing the personal laptop, BMW from unveiling the first of its new hybrid vehicles, or OpenTable (Nasdaq: OPEN  ) from streamlining restaurant solutions in unprecedented ways.

In addition, merger and acquisitions (M&A) will usually pick up speed in recessions, as the companies that have cash become more willing to spend in order to finance expansion, growth, and creativity. The Boston Consulting Group says this is a smart move -- according to its research, deals done during a recession generate 15% more return to shareholders than deals done during a boom period.

These massive industry shakeups can have lasting impacts. Right now, as we steer our way through the greatest recession in decades, there are a plethora of opportunities to take advantage of.

Innovate, innovate, innovate
Craig Barrett, former boss of Intel, has said, "You can't save your way out of a recession; you have to invest your way out." He's right. To truly improve profits, companies can only cut costs for so long. The only true way to come out on the right side of the recession is to innovate, break rules, and hope your ideas are better than the next guy's. The Kauffman Foundation, in a study of entrepreneurship, found that about half of the current Fortune 500 companies were founded during recessionary or bear markets.

That's why companies such as IBM are holding a series of "innovation jams" designed to come up with new and influential initiatives, and why Cisco Systems (Nasdaq: CSCO  ) is using its excess cash to transform itself from a back-room network plumber to a more versatile, diversified business.

Time to break the rules
This line of thinking gets David Gardner, co-founder of The Motley Fool and head of our Rule Breakers team, excited about investing right now. David is a classic growth investor -- he loves companies that are breaking the bounds of normalcy and igniting risky but intelligent shifts in their industries.

I recently had the pleasure of sitting down with David to discuss his investing strategy. He said he tries to invest in companies that he believes in, but which also have "dark clouds I can see through." David explained that if you can look past that dark cloud of adversity, but others cannot, you will often gain from other people's fears.

That's what David did when he recommended buying Marvel Entertainment about seven years ago. Marvel was a much smaller company then, but one he believed in. Many others thought that superhero movies would be a short-lived fad, and thus assumed the company was a bad investment. David stuck with his gut, recommended Marvel several times over, and has now netted more than a 1,300% gain!

His team recently selected Ebix (Nasdaq: EBIX  ) as a Rule Breakers recommendation -- one with all the traits of a recession-beater. The company has positioned itself as an integral part of the insurance software arena. Ebix has stepped into the multibillion-dollar insurance field and made it possible for brokers, underwriters, and agents to seamlessly enter and find data using Ebix's software platform. It has grown both organically and through acquisitions, has a paltry 0.3% debt-to-capital ratio, and is expected to grow earnings about 18% over the next five years.

The analysts at Rule Breakers offer two new stock ideas every month that fit this same criteria. Some picks have turned out differently than they anticipated (witness recommendation GigaMedia, down more than 60% on the scorecard), but since 2004, they're beating the S&P 500 by more than 17 percentage points. That's pretty impressive.

If you're interested in seeing all of David's past and present stock recommendations, or learning more about Ebix, click here for more information. We're offering a 30-day free trial with absolutely no obligation to subscribe.

Already a Rule Breakers member? Log in at the top of the page.

Fool contributor Jordan DiPietro owns shares of General Electric. Ebix and OpenTable are Motley Fool Rule Breakers picks. Walt Disney, Electronic Arts, and Marvel Entertainment are Stock Advisor selections. Walt Disney and Intel are Inside Value picks. The Fool owns shares of Ebix. The Fool's disclosure policy broke too many rules on Halloween, but blames it on a sugar rush.


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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 November 19, 2009, at 5:39 PM, phillyarchitect wrote:

    Did I miss something? What is the One Stock? I am a Rule Breakers Subscriber, but they don't have a single stock they're holding out there. Articles like this are somewhat annoying when you have a teaser headline that is so misleading.

  • Report this Comment On November 19, 2009, at 6:47 PM, buktu42 wrote:

    Yeah... I was confused by the title...

    Mis-use of a good title... what is the 'ONE' stock?

    In mentioning recession proof stocks... I expected to see CPRT mentioned at least. The CEO of Copart has been on many stock shows saying that.. and they seem to be unaffected in this economy. Indeed... it seems companies that prosper on others mis-fortunes are seemingly not affected by economy.

    Of course... I'm not an expert.

  • Report this Comment On November 19, 2009, at 7:14 PM, jeffguerra wrote:

    One stock to rule the recession? Exactly what stock might that be? This is the last time I will be mislead by the Motley Fool team. At last I realize why we are, no, make that we WERE called fools.

  • Report this Comment On November 19, 2009, at 7:18 PM, wintrwman wrote:

    I couldn't agree more!

  • Report this Comment On November 19, 2009, at 7:26 PM, Akiraiaia wrote:

    Pretty straight forward EBIX isn't it? I don't know if that's THE recession proof stock out there but this article is pretty clearly saying so...

  • Report this Comment On November 19, 2009, at 8:09 PM, Bonefish100 wrote:

    This is another example of TMF misleading advertising. I just had a subscription expire and I won't be renewing it. This is BS.

    WHERE'S THE ONE STOCK?????

  • Report this Comment On November 19, 2009, at 9:02 PM, ozzfan1317 wrote:

    I'm guessing they are saying Ebix but its not the clearest use of words..lol

  • Report this Comment On November 19, 2009, at 9:59 PM, TMFPhillyDot wrote:

    Like Akiraiaia said, yes, the stock I am referring to is Ebix.

    I apologize for any confusion.

    Thanks,

    -Jordan (TMFPhillyDot)

  • Report this Comment On November 19, 2009, at 10:08 PM, Emmybeez wrote:

    My only ongoing problem with the Fool is that I saw a report that listed a "small investor" that only had $10,000. Let me climb out of my moneybin and reply to that: like a lot of folks, I'd like to invest, but I don't have anything close to that much money to spend.

  • Report this Comment On November 20, 2009, at 8:56 AM, rmackinnon wrote:

    I would like to strongly agree with phillyarchitect that these teaser ads are very annoying to present subscribers. I subscribe to Rule Breakers, Income Investor and Stock Advisor and I get these all the time. I have even emailed you, as a subscriber, to ask the name of a stock you are pitching. No response. Not good.

  • Report this Comment On November 20, 2009, at 9:14 AM, zircon70 wrote:

    I learned a valuable lesson more than a few years ago. Fewer words say more. I'm sure many of you know that. I would only suggest The Fool deal with

    short sweet finite info, do not ramble, they would get more subscriptions. The Fool is getting away from basic investing info.

  • Report this Comment On November 20, 2009, at 10:16 AM, 8Lives wrote:

    No Jordan, it was pretty clear the stock you were referring to--Ebix. What I don't get, is how some of us investors, not only want 'our cake and eat it too' but have it spat down our throats via momma-bird. I'm nothing special and I've only been doing this investing thing since '06, but have done substatually better than the market durring those years and the Fool's 17%+. But I couldn't imagine a cheaper more painless way to get study than the Fool, and Jim Cramer's --Mad Money--. Both sources give countless disclaimers that their suggestions should not be taken as "financial gospel" but rather a starting point for personal research. I'm a firm believer in the mantra that nobody cares about YOUR MONEY as much as you do. But, if you know that you struggle to invoke a personal discernment of what you read and hear when it comes to investing. . . than you should pay someone you trust for guidance.

    -Warren Buffet is a "G" -- try to follow his thought process and duplicate his style.

  • Report this Comment On November 20, 2009, at 12:47 PM, wrongdog wrote:

    Ebix looks like a falling knife right now, what is going to keep it from going back to say $30?

  • Report this Comment On November 20, 2009, at 1:27 PM, wf9349 wrote:

    Dave & Tom, I am a subscriber to the Motley Fool and I have tried to contact you several times with no result and don't even know if you get the e-mail. You do not tell your subscribers how they can ask questions of your services. You send through suggestions about a hot stock and then you do not tell us what it is and the call letters on the exchange. Why can't subscribers get an answer from you?? I can assure you unless you answer this inquiry, I will no doubt not be a subscriber again. I am sure most of your income is from your subscribers. Thank you , Wanda

  • Report this Comment On November 20, 2009, at 5:18 PM, hydro101 wrote:

    The Market is a strange beast.If any analyst or broker picks 100 stocks,some will tank,some will go to the moon and some will do nothing,like polaroid did.I have made good money with some of the fools picks but have also lost some.You have to decide on risk tolerance,types of stocks you want to own.They are not all the same.I belong to 3 of their premium services and am happy.When I lose money I am not but you will lose some money in stocks.My old broker had me in GE,World- com and Enron.Plus i have learned a lot.If you choose not to subscribe that is up to you.As far as EBIX goes I am buying more as it falls

  • Report this Comment On November 20, 2009, at 6:52 PM, klooper wrote:

    I agree with the other comments. You need to be more straightforward. What stock is the 1 stock to rule the recession? Also, since the first day that you recommended Hasbro, it has never been $27. Have you bought this stock? What did you pay for it?

  • Report this Comment On November 21, 2009, at 2:52 PM, CatTrades wrote:

    I thought the article's One stock to Rule the Resession was ATIV. That was pretty clear. Was it not ?

  • Report this Comment On November 21, 2009, at 5:51 PM, Othello4U wrote:

    Ebix, a $50.00 stock, recession proof, yah. If I had that kind of money, to buy one stock, this would not be a recession to me, just time off.

  • Report this Comment On November 23, 2009, at 1:11 AM, lrecap wrote:

    There are some that seem to do OK in investion on their own and talk down, "belittle" others that are not so blessed - - it continues to amaze me how some individuals feel all should be able to do the same thing (I have a brother in law that is that way - - very smart, very perseptive - - expects you to be able to do the same - - as an extreme example of how some people are different - - he can not read music, but can play a song on the piano just by hearing it- - if every one were really the same, it would be a boring world. So those that belittle others - - why not spend you time elsewhere.

    With that said, I have noticed in recent times (yr[s]), that the TMF "hype" is looking/sounding more and more like a "me too" with the other dozen investment emails pitches I get weekly - - all have "the" answer. As TMF grows, is it they must do this in order to keep the growth going???

    I have subscribed to many of the TMF news letters and my primary concern was that each was too "narrow" to be well diversified. I had expressed my feelings about that a number of times in a number of discussion groups with the usual, it is only money, act like you were paying for an education, etc, etc, etc - - to which I fully disagreed - - money is money and you need to wisely use it - - - and by TMF's own guide line that they "teach", you should pay no more than a couple of percent per year for any investment portfolio (or less). You could not really be diversified using the segmented newsletters without considerable effort in the past. (the individual newsletters are still good for those that may want to concentrate in a given area - - but for most that is not the best path to walk).

    The MDP was in the right direction, with a fine tuning recently, getting better handle on allocation/ diversification. The plus of an approach as the MDP and the MFPro (if you are more aggressive/ engaged) offer is that more thought goes into each suggestion (hopefully), the selection number is finite, and not just putting one or two out there per month because that what was "promised", which ended up with way too many for a small investor to handle..

    I know, I know - - TMF is for teaching and enjoyment, but many look for a little more than that - - some real honest guidance (still have to make your own decision as to buy or not at the bottom line).

    But I am bothered somewhat by the direction of the title selections and some of the articles in recent times. The "quality" of the original quality of the "brothers" seem to be getting lost.

    lre

  • Report this Comment On November 23, 2009, at 10:25 AM, wrongdog wrote:

    I saw that someone called Cramer on Ebix too: http://www.cnbc.com/id/34065564

  • Report this Comment On November 27, 2009, at 10:23 AM, ScottAger wrote:

    Nothing counterintuitive about it. When the oh so smug managers, bean counters, and marketers hit the wall they grudgingly open the cage and let the innovators create. And as usual the "inside the box" folks swarm in to take the credit. Been there, done that, now I let them self-immolate. Marshmallows, anyone?

  • Report this Comment On November 27, 2009, at 12:26 PM, texaslulu wrote:

    I agree that these articles are confusing trash and beat about the bush like a weed wacker...let me out of this mess.

  • Report this Comment On November 27, 2009, at 4:05 PM, wisner1 wrote:

    Got to tell ya....if there was one reason I dropped out of MF it was because of articles like this! Get with it guys!

  • Report this Comment On November 27, 2009, at 7:34 PM, MW7 wrote:

    I just read Ayn Rand's book, "The Fountainhead" and I am 1/4 of the way through "Atlas Shrugged." And these comments resonate with Rand's writings against mediocracy and her enthusiasm for individual effort. Maybe it would help to go back and read the previous article s-l-o-w-l-y. I wouldn't be investing on my own if it wasn't for MF's encouragement to be an individual investor. (Thanks MF)

  • Report this Comment On November 28, 2009, at 9:16 AM, MORK000 wrote:

    If you Pay $50 for a Stock you have probably a very good income, However if you pay more your income increases more, Me I'm living on retirement income can not afford these kind of stocks even if I buy 1 share, So,show me a better way to take?

  • Report this Comment On November 28, 2009, at 10:52 AM, tossit wrote:

    I used to pay for this service but quit my subscription due to the many articles like this. I lost money when I invested on my own and even more when I invested using using MF's recommendations. I just don't get it...Name the stock if you think there is this one recession-proof stock. When you put out trash like this, all it does is make people mad. Name the stock and tell why you think it is great. It's a pretty simple concept!

  • Report this Comment On November 28, 2009, at 5:04 PM, agehasz wrote:

    I have to agree with the whiners here. These tease "articles" stink, and undermine the legitimacy of TMF in my opinion. They should advertise their service, sure, but these pose as something theyre not and as a result are just bait and switch spam. I used to subscribe to SA, IV, and HG by the way but over time articles like this have diluted the MF brand and I've list faith.

  • Report this Comment On November 28, 2009, at 5:09 PM, martinswole wrote:

    Life is not about being right or wrong. It is not a black or white. Its definition is rather very blurred. It is rather transformational. We are take Coca cola and Pepsi products daily. These drinks as we all know are the major cause of obesity and diabetic and other related diseases. Coca and Pepsi have used their financial muscle to slow down legislation. More so that we all love drinking them. I am sure those of you condemning investment in Pillips Morris have investment in these companies that knowingly, quietly and sweetly killing the whole world. While cigaratte companies carry warnings on their products, Coca cola and Pepsico did not. So which is more dangerous. We preach righteousness and value, when we are opposed to issue under discuss. Values are personal issue and it cannot be validated on another person. Moreover, there is nothing call taboo any longer as we can only draw a line of moralty on oneself. If you can invest in Pepsico, Macdonald, KFC etc, the man who invest in Phillip Morris is justified as well.

  • Report this Comment On November 28, 2009, at 7:15 PM, mcleanmoron wrote:

    Like many of your subscribers I participated in the MOTLEY FOOL PRO and FOOL Million $$ programs and lost big $$$ following your suggestions this year. With the market tanking you insisted on stocks like AIB which had already lost big but you insisted were quality buys. I should have followed the CABOT letter advice and gone to cash but I gave yiur advice credence it did not deserve. I will not be FOOLED again.

  • Report this Comment On November 29, 2009, at 5:58 AM, stopthespam wrote:

    I too am sick of the spam. I keep thinking I'm about to read something interesting and again it ends up being a sales pitch. I'm not about to unsubcribe to e-mail and have cancelled a trial membership as a direct result of my negative reaction to the spam. I'm off. Good luck everyone.

  • Report this Comment On November 29, 2009, at 10:55 AM, normalcrew wrote:

    EBIX, EBIX, EBIX

    I found that the "one stock" was delivered pretty clearly. Read the detail of the article (yes, I know it is tempting to skim it and find the "answer"). In-N-Out is privately held. Other companies were referenced to give the piece depth and a base to measure against.

    Thanks for the insight, Jordan

  • Report this Comment On November 29, 2009, at 12:46 PM, swiver wrote:

    Agree with those above who want less verbiage and more fact.

    I recently went through some other "newsletters" , and one in particular was about the potential for horizontal drilling under Paris (The one in France, not the one in N Texas) where a Dallas-based oil company had forsaken its Texas assets and bought rights in the Paris basin. I managed to figure out which one it might be.

    ....then there was all that stuff about the lightest metal, which anybody with high school chem knows is lithium. Why all the clues in these letters without naming it? It must take more time to think up the verbiage.

    My English teacher used to say "clear and concise" was the way to go.

  • Report this Comment On November 29, 2009, at 9:32 PM, mjmcesq wrote:

    I wish I had invested with the company years ago--when I am told it didn't deal in the misleading "teasers" it now routinely uses to attract readers and their money.

    Why was the old (and I'm told) and very successful business marketing model abandoned for the current huckster format? PLEASE ANSWER but please don't claim that your business marketing model hasn't changed--there are too many contrary views I have read and heard.

  • Report this Comment On November 30, 2009, at 6:29 AM, speedman7 wrote:

    The MOTELY FOOL has ruined it's own BRAND, The model of honesty and clear investment ideas along with educating the 'new fools' has gone our the window. The lolsses achieved by the MOTLEY FOOL owners and their followers (us, folks !) has caused this formerly wonderful group of 'advisors' to trick the readers, give false titles to articles, and drive a gazillion emails to all of us readers --- which provide little or no value --- and just get 'real fools' to subscribe to more and more of the duplkicated newsletter articles which bring little value to most of us: the readers. Sad, so sad, that you (too) have gone the way of the foolish printed press and have lost your readership to marketing and emailing FOOLS. The 'brothers' need to totally reevaluate their changed business model and amounts of communications which are never opened and never read and never subscrived to. Lest we all say more?

  • Report this Comment On December 01, 2009, at 9:58 AM, MaxPower1995 wrote:

    Pardon the pun but you guys are fools.

    It was perfectly clear that the author is recommending Warner Entertainment. I am so stoked that I just purchased a comic book store. I figured why buy the stock when I could eliminate the middleman and buy the comics directly.

    I may be a fool but I'm no idiot.

  • Report this Comment On December 05, 2009, at 2:58 AM, nakie wrote:

    My head is spinning after reading the huge response to the teaser. Good marketing I guess. The fools are "Mad Men" . What is the stock? Am I a fool or an idiot for paying attention to this.

  • Report this Comment On December 25, 2009, at 3:46 PM, Lienbuster wrote:

    Nice article if you take the time to read it.

  • Report this Comment On February 11, 2010, at 5:05 PM, mostofall wrote:

    The Motley Fool turned me on to NFLX, DLB, HAS, and ATVI.........I don't have to tell you how well I have done since last year. When I had nothing!! We all can lose

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