In this stage of The Cheat Sheet the market is falling even though the economic news is still good. Stockbrokers tell clients “it’ll be alright, the economy is fine” even as statements decline. Although people think this is the perfect time to sell, a better idea is to shift assets into areas that continue to grow in any economy.
- Healthcare
When the economy is tight, people still pay for healthcare. Drug companies, HMO’s, pharmacy benefit managers (PBMs) and medical devices should withstand a harsh market decline. Although this is a good place to be during a downturn, its not perfect. Deep recessions still cause people to cut back on non-needed prescriptions and surgeries that aren’t necessary, so EPS estimates can come down slightly.Healthcare starts to do well when the economy is expanding (market is thinking ahead to the economic decline) and outperforms through most of the economic downturn. In the late-stages of a recession, its good to flee Healthcare and look ahead to companies that will do better as the economy improves. - Food & Necessities
People gotta eat. That’s what you should think when the economy is down. Invest in groceries companies and drug stores — places people spend at everyday. Auto parts stores also do well because people fix their old cars instead of buying new ones. For-profit education is new to this area of the 2011 Cheat Sheet because people get laid off during tough times, then return to school and further their education — which they deem to be a necessity.Just like healthcare, Food & Necessity stocks get a head start at the first signs of a market decline. These do well during the recession but be quick to pull the trigger if the sexy stocks start to show strength and breakout.
