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The New Year got off to a strong start with stocks posting a nice little pop on the first day of trading. And even after yesterday’s pullback, the broad indexes are still well above their recent lows. Anyone who bought on the dips has done quite well.
Will the good times continue throughout the year?
Fundamentally speaking, I think our economy is in for more pain this year. And I don’t expect a bottom in real estate, either. All the latest data points to continued weakness across the board.
But there are plenty of reasons to be optimistic, too. Especially when it comes to solid dividend stocks in the right sectors …
Let’s Start by Looking at
The Best Sectors of 2008
In December 2007, both in my Dividend Superstars newsletter and right here in Money and Markets, I said it was very likely that the U.S. would see contracting GDP no matter how low the Fed pushed interest rates.
And according to the National Bureau of Economic Research’s Business Cycle Dating Committee, the most widely-followed experts on the subject, December 2007 actually marked the exact top of the U.S. economy.
The NBER determined that the U.S. economy ended its 73-month-long period of expansion about 12 months ago.
This will come as no surprise to you, I’m sure. After all, as regular folks we tend to see conditions on the ground better than academics in ivory towers.
Back in December 2007, I also said consumer staples, healthcare, and utilities stocks typically outperform in recessions. And I told my Dividend Superstars subscribers that these same sectors would be the strongest in 2008.
Based on full-year 2008 data, here’s how my forecast worked out:
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Historical Sector Performance
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Sector
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2008
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2007
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Consumer Staples
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-17.66%
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11.5%
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Health Care
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-24.48%
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6.40%
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Utilities
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-31.55%
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13%
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Telecommunications Services
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-33.61%
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8.40%
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Energy
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-35.93%
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32.70%
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S&P 500
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-38.49%
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3.50%
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Industrials
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-41.52%
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10.80%
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Information Technology
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-43.68%
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10.80%
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Materials
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-47.05%
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20.30%
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Financials
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-56.95%
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-20.70%
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As you can see, consumer staples stocks were the top performers by a wide margin. Health care and utilities also held up substantially better than the market.
All of that is exactly in line with historical data, and it’s precisely why the Dividend Superstars portfolio was able to trounce the S&P 500 last year, doing more than twice as well as the benchmark for U.S. stocks. The fact that each and every company paid out solid dividends also helped.
But now, as we enter a new year, the important questions are …
Will These Same Sectors Do Well in 2009?
And What Specific Stocks Should You Consider Buying?
In short, I do remain bullish on companies that provide necessary products and services. And I think economic weakness in the U.S. will continue to make these companies the best choices for the bulk of your conservative stock portfolio.
Of course, I’m looking at dividend companies across all sectors and industries and finding good bargains everywhere I look.
Some of the criteria I’m using: strong balance sheets, plenty of cash on hand, and healthy dividend payments. Companies with those kinds of fundamentals can get you through thick and thin.
For example, I recently gave my subscribers three new recommendations in the special 2009 Annual Forecast issue of Dividend Superstars:
New dividend stock #1: It’s in the battered financial industry, but it managed to sidestep most of the carnage over the last year. It’s got a terrific niche business. Its shares are dirt cheap. And its balance sheet is absolutely pristine.
New dividend stock #2: This one comes from the tech sector. Sure, global weakness will continue to pressure sales, but this firm has mounds of cash, no debt, and it recently BOOSTED its dividend! I’ve been pointing out that tech stocks are emerging as a new area for dividend checks, and this company is proof positive.
New dividend stock #3: The third stock I recommended is in the energy sector. And man, its shares got smashed to smithereens last year. But its fundamentals are great, and that’s exactly why I told my subscribers to buy.
So far, so good: Since my initial recommendation on December 24 through yesterday, the shares have jumped a whopping 20.2%! And that doesn’t include one single penny from the dividend payments.
Not bad for six trading days, eh? I think there’s plenty more upside ahead, too.
Look, my point is simple: Now is the time to get out there and start bargain hunting.
I’m not saying you have to go whole hog. Nor am I saying there isn’t still the possibility of a big market dip in 2009.
But there are plenty of stocks that have been punished for no good reason. Companies that have been through all this before. Special situations in every corner of the market. And firms that will pay you handsomely no matter what the market does in the next week, month, or year.
Best wishes,
Nilus
P.S. If you want the details on those three new recommendations — including the stock that has already gone up 20% in just six trading days, click here to get my Annual Forecast issue immediately.
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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