Beat the Recession With These Two Stocks
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Editor’s Note: McDonald’s (NYSE:MCD) is the cheapest place to eat in the US right now.And 12% Letter editor Tom Dyson says it’s going to get more and more business as the recession puts expensive restaurants out of reach. But are prices going to stay low as McDonalds’ transport and food production costs rise? Only time will tell.
The same goes for Wal-Mart (NYSE:WMT) – there’s nowhere cheaper to shop. As long as you live within walking distance, that is…
The Two Best Stocks to Own in a Recession
Tom Dyson
Detroit’s auto industry was one of the spectacular investment stories of the 20th century. The auto industry became America’s largest industry by 1929. Detroit’s population rose 500% during this time. Detroit’s auto industry bloomed again after the second world war…
But by the late 1970s, everything had fallen apart…
Cheap competition and wage inflation forced Detroit’s automakers to move their plants to Mexico. Two different oil crises gifted large chunks of Detroit’s market share to the Japanese and their small cars. Riots broke out, workers got fired, and major manufacturing towns like Detroit, Saginaw, and Flint fell apart.
But none of this bothered Ken.
I met Ken in Detroit last year on a business trip. He made hundreds of millions of dollars supplying auto parts during the collapse of Detroit’s auto industry. He went into business just as the decline began. And the worse the conditions got for Detroit’s automakers, the more money Ken’s businesses made…
Here’s his secret to making money in a depression…
In 1971, Ken graduated from college and went to work at a factory making industrial fasteners for the auto industry. Six months after he started work, the factory went bust. So Ken decided to go to graduate school instead. While filling out application forms for his prospective schools, he came up with a new method for manufacturing those industrial fasteners.
Ken was so sure of his idea, he used a university acceptance letter to secure a large student loan. Then he bought equipment at auction, rented a small industrial space, and started producing fasteners.
Twenty years later, Ken’s company had reached $100 million in annual sales, producing fasteners, airbag canisters, highway construction tools, and dozens of other small manufactured components. Ken recently sold his company… And it became a division of a publicly traded business.
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I asked Ken how his business was able to grow so fast in a shrinking industry.
“Simple,” he said. “I made my fasteners cheaper than anyone else. When money got tight in Detroit, all the automakers came to me. I became the major supplier of fasteners in Detroit.”
This is why business is booming at companies like McDonald’s (MCD) right now. McDonald’s is probably the cheapest place to eat in America. You simply can’t get cheaper food anywhere else… even in the supermarket. With the real estate and credit problems, Americans are tightening their budgets. So they’re going to McDonald’s for food instead of more expensive options. Sales at McDonald’s have risen 5% in April and 7.7% in May.
It’s the same at Wal-Mart (WMT). With inflation pushing up food and energy prices, consumers are looking for bargains. Wal-Mart is the cheapest place the shop on Earth. It’s winning market share from more expensive retailers…
Wal-Mart’s profit increased 6.9% in the recent quarter and its sales went up 10.2%.
Wal-Mart and McDonald’s are the price leaders in their markets. They’re up 35% and 20%, respectively in the last nine months… And the S&P has fallen 12%.
Ken made millions in Detroit’s recession making fasteners cheaper than anyone else. If there’s a recession in the United States, I expect Wal-Mart and McDonald’s will dominate their markets… just like Ken’s business did in Detroit.
Good investing,
Tom
Source: The Two Best Stocks to Own in a Recession
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Tags: bear market, Downturn Strategy, food crisis, gas prices, MCD, Tom Dyson, WMTAbout the Author
Tom Dyson is the editor of the 12% Letter and a contributing editor, with Dr. Steve Sjuggerud, of DailyWealth. He started his professional career at Salomon Brothers, before moving to Citigroup, where he worked for an international bond trading desk in London. In 2003, he qualified to the Chartered Institute of Management Accountants, left Citigroup and moved to the USA to become a fixed income analyst at Stansberry Research.
The DailyWealth mission is to show you how to avoid risky investment, and how to avoid what the average investor is doing. We believe that you can make a lot of money and do it safely by simply doing the opposite of what is most popular.