Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we could be in at present). From the shortest one -- six months in 1980 -- to the two that spanned 1973-1975 and 1981-1982, we've muddled through and come out the other side. In between each, we've experienced, on average, almost five years of expansion.
So while we could be in another recession right now, I'm excited!
Pardon me while I wipe my chin
First, we have a whole bunch of people running around in panic mode crying, "The sky is falling!" They don't want to hold stocks during a recession, so they're willing to sell them -- cheap.
Second, the news media fans the flames of panic with constant stories about weakening consumer spending and the specter of recession.
Third, we've got a handful of really hated companies. Specifically, I'm talking about the banks, thrifts, and builders that caused and are feeling the fallout from the mess we're in.
What does that add up to? Bargains.
Like a kid in a candy store ... and the candy's on sale
One option is to search among the beaten-down banks. In that space, Lloyds TSB Group (NYSE: LYG) is an intriguing company. While it had to write down some loans in the first half of the year, it's not greatly exposed to the CDOs and subprime mortgages that have been the bane of U.S. institutions such as Washington Mutual (NYSE: WM). All the same, its shares have tumbled roughly 35% this year. This generally conservative firm is looking tasty!
And if you don't want to invest in a bank, but still want exposure to the financial sector, consider MasterCard (NYSE: MA). It takes a fee from the millions of credit card transactions executed daily, without being on the hook for the amounts charged. So-called tollbooth companies can make excellent investments.
Then there are (still) the retailers, trying to survive declining same-store sales and decreased consumer spending. A strong balance sheet is helpful here, and Buffalo Wild Wings (Nasdaq: BWLD) has a great one -- $74 million in cash and short-term investments, with no debt. Even better, it actually reported same-store sales growth of 8.3% in company-owned stores, and 4.5% in franchised stores, in the just-completed quarter.
Even some big-name companies have been dragged down, including Starbucks (Nasdaq: SBUX), the dealer to our caffeine habit. The stock has been falling for most of the past two years, partly from its own problems, but partly from the current consumer environment.
Finally, consumer products and tech have gotten interesting lately. Giants Kimberly-Clark (NYSE: KMB) and Cisco Systems (Nasdaq: CSCO) are off significantly from their highs of late last year. All that talk about lower consumer and company spending in 2008 may have driven their prices down. For my money, I'm more interested in companies I can buy today to own in 2013 -- so thanks for the bargains, Mr. Market!
"When Miller and Nygren speak, people listen."
Investing in the above industries might seem counterintuitive now, but Bill Miller of Legg Mason says au contraire:
[Several] years ago, everyone wanted tech and Internet and telecom stocks... The time to buy them was in 1994 or 1995, when they were cheap. But in 1994 or 1995, people wanted banks and small and mid caps, which should have been bought in 1990, and well, you get the picture.
Bill Nygren, another great value investor, agrees. Looking at the current economic situation, he wrote, "What usually happens is that suffering industries begin to recover, the next crisis comes from somewhere least expected, and the cycle of creating new investment opportunities starts anew. We have no reason to believe it will be different this time."
These gentlemen know that investing today in areas that aren't well-liked will position your portfolio for the eventual end of this bear market. There will be another bull market. What we have now is the chance to grab some good companies while they're cheap.
So what are you going to do? Stop investing in stocks altogether, worried that things will be different this time? Or listen to master investors (not me -- Miller and Nygren!) and look at some opportunities?
I know what I'm doing.
Finding value
If you'd like some help in figuring out whether a beaten-down company is worth investing in, take a look at our Inside Value service. Philip Durell and his team look in downtrodden areas of the market, just as Miller and Nygren advise.
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This article was first published on Feb. 12, 2008. It has been updated.
Jim Mueller
owns shares of Starbucks and Buffalo Wild Wings, but no other company mentioned. The Motley Fool owns shares of B-Wild and Starbucks. Starbucks is a recommendation of both Stock Advisor and Inside Value. Lloyds is also an Inside Value pick Buffalo Wild Wings was chosen for Motley Fool Hidden Gems, while Kimberly-Clark got the nod from Income Investor. The Fool's disclosure policy believes, deep down, that the market will turn around.
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