GEO Investing

We’re not the biggest fans of quoting Jim Cramer around here, but one phrase that he commonly says rings true for the purposes of this article. Cramer always ends his show by saying “there’s always a bull market somewhere”. We aim to find that bull market at all times, including during recessions. In other words, finding recession resistant stocks is our end goal.

With the recent 20% pullback in equity markets, and the mainstream media’s ensuing response, sentiment among investors and traders is finally that we could be on the cusp of a longer-term recession. While some investors view this as an extreme detriment and definitive proof that they should move out of the markets, or that they won’t make money, we view it as just the opposite. We are investors, not market timers. We know that we can make money in a recession: we’ve done it before, and we will do it again. The only question is how.

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We define recession resistant companies as companies that may experience some setbacks during a recession, but still may be able to grow. For instance, while consumer spending may lighten up during a recession, discount retailers are likely to feel less of the brunt of slowing spending then other retailers. This is because, as spending lightens up, some consumers will be encouraged to move toward these types of discount retailers in order to accommodate their new spending habits. This will offset some of the loss of business that takes place as a result of the recession. Even technology companies that are serving special niches of the economy like telecom and data center solution providers can sustain growth during economic soft patches.

We also think about companies like cigarette manufacturers, fast food companies and alcohol manufactures as recession resistant. Many times, when financial hardships occur in people’s lives, they are more likely to wind up spending on things like alcohol and tobacco. Regardless, these are items that consumers don’t necessarily part with, even when times get tough. In terms of fast food, it is an industry that is considered to be semi-recession resistant because the need to eat is always going to exist. We have seen during past recessions that consumers have moved out of traditional restaurants, which can be expensive, and toward fast food.

“From takeaway pizza outlets to purveyors of deep-fried chickens, the recession has proven to be a boon for fast-food operators as more people have turned to cheap and easy food,” the Financial Times wrote back in 2009.

When we think about recession proof companies, we think about companies where it will be business as usual, like defense companies, death care services, pharmaceuticals, cyber security and medical device companies.

While valuations may contract during a recession, we know that companies that have strong ties to preserving national security of the United States are likely going to receive the funding and, as they are integral to the overall well-being of the country. Additionally, the sick will not stop taking their prescriptions.

And these types of opportunities don’t just exist in the large cap world. There are numerous microcap names that are also integrated in these same fields that we believe offer up unique buying opportunities at points of recession. While we believe many microcap names to have compressed valuations to begin with, further downturns in valuations as a result of broader market pullbacks sometimes can create extremely cheap opportunities for the microcap investor that is willing to put in the work to try and identify these names.

Whether a recession will or will not occur in 2019, it’s important to realize that investors are perceiving a high probability for this kind of event, whether it actually be a longer-term recession, or a transient yet large pullback. So, we believe they will eventually gravitate to “recession friendly” stocks. I have been a full time for 30 years and GeoInvesting is entering its twelfth year of operation. We’ve provided thousands of research pieces in U.S. microcaps and conducted countless management interviews, allowing us to focus on stocks that we believe will thrive, recession or no recession. Five of the stocks are included in a favorite stock model portfolio.

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