Stocks That Beat Inflation and Recession

"I would say, by any commonsense definition, we are in a recession."
-- Warren Buffett, CEO of Berkshire Hathaway, on CNBC's Squawk Box, March 3, 2008

"It may not be official, but it is increasingly obvious: America's economy has slipped into recession."
-- "The Long Hangover," The Economist, April 10, 2008

Through the first four months of the year, everyone took it for granted that the economy was, or would soon be, in a recession. Well, nearly everyone.

At the end of February, I drew Inside Value readers' attention to a CNBC interview with Sam Zell. The self-made billionaire investor stated that he didn't think the economy was in a recession -- nor would it go into a recession. He wasn't whistling against the wind, he was whistling against a typhoon.

Seven short months later, he's almost been vindicated -- recession worries have gone out of fashion. The talking herds have moved on to the next fear of the moment: inflation.

The stream of "experts" who counsel investors to prepare for economic scenarios that change constantly are confusing everyone.

What do you do now?
The antidote to all of this commotion? Ignore what the experts project will happen to the economy over the next three, six, or 12 months. Instead, put your mind to owning enduring businesses that will continue to earn high returns on capital through good times and bad over the next five, 10, and 25 years.

Still concerned about the macro forecast? Some industries don't suffer as much as the overall economy during a recession, because the demand for their products is pretty stable. After all, when was the last time you stopped yourself from ordering a Budweiser from Anheuser-Busch (NYSE:BUD) because you thought GDP growth was at risk?

Companies (Anheuser-Busch included) selling strongly branded food and beverages often meet that criteria, and they also come with an added perk. They're often the companies best able to pass on price increases to their customers, so inflation doesn't scare them.

Here are some other names to consider, including some pharmaceutical stocks -- another solid industry during troubled economic times:

Source: Yahoo! Finance.

The Foolish bottom line
So do your best to tune out the noise, and continue to look at the long-term picture. You never want to let macro-based predictions dictate the stocks you buy or sell, but if you are scared of a coming recession or rampant inflation, spend your time researching businesses like those above -- which are well-positioned in both the short term (despite recessionary or inflationary fears) and the long term.

Sadly, there's another key component to consider: price. The easiest way to turn a good business into a bad investment is to overpay.

At Inside Value, Philip Durell and his team constantly scrutinize businesses like those in the table above, ready to pounce on the opportunity to purchase them at a reasonable price. (Indeed, Colgate-Palmolive and Anheuser-Busch are past picks.)

If you're tired of watching weathervanes and want to position yourself to earn long-term profits, you can take a 30-day free trial to find out which stocks Philip recommends now.

This article was first published on June 10, 2008. It has been updated.

Fool contributor Alex Dumortier, CFA, has no beneficial interest in any of the companies mentioned in this article. Glaxo and H.J. Heinz are Motley Fool Income Investor picks. Colgate-Palmolive is a former Motley Fool Inside Value recommendation. Berkshire Hathaway is a Stock Advisor and Inside Value selection. The Fool owns shares of Berkshire and has a disclosure policy.