By now, you likely know that the major market indices plunged into correction territory Aug. 4. That was the day the Dow cratered 512 points in a capitulation sell-off that showed just how much fear and loathing there is right now for equities. And because the stock market is a forward-looking mechanism, the huge sell-off does not auger well for the economy going forward.
So, what’s an investor to do right now? Do you sell everything and run for the bunker? Do you short stocks? Or, do you go for the gold? While a good argument can be made for taking all three of these paths, there is another way to go. If you suspect that the world isn’t coming to an end and that “this too shall pass,” then one course of action worth exploring is to buy the stocks likely to survive despite a wicked downturn.
And while I think smart investors have a lot of companies to choose from, here are five of my favorite survivors.
iShares FTSE China 25 Index Fund
Growth in the U.S. economy can generously be described as anemic, and that means you want to own companies getting a big chunk of their profits from outside the U.S.. You also want to hitch your portfolio wagon to the fastest-growth economies out there. One of those economies is China. Sure, the Chinese economy has its problems. Inflation, a housing bubble, political corruption and poor accounting standards all have put a damper on investing in China. Yet that still doesn’t negate the fact that the country’s GDP is growing at a blistering 9.5% rate.
When stocks around the globe struggle, investors will turn to where the growth is, and that means China. One great way to buy the best of the Chinese market is the iShares FTSE China 25 Index Fund (NYSE:FXI). This ETF exposes you to the 25 largest and most liquid Chinese companies. The fund has been hit relatively hard this year as investors have largely avoided China. But when the rest of the world struggles, the flight to growth begins — and that could mean a trip to China.
The Coca-Cola (NYSE:KO) brand is one of the strongest in the world. This company consistently drinks up the profits, and it gets those profits from nearly every corner of the globe. As third-world nations become second-world nations and as second-world nations grow their way into first-world status, the Coca-Cola brand is destined to become exponentially bigger.
Also, if the current economic environment does devolve into a really ghastly downturn, then Coke is liable to sidestep that decline. That’s because the beverage is one of the few luxuries that just about any consumer still can pay for regardless of his economic circumstance. Rich or poor, Coke drinkers are loyal to their brand, and it’s that kind of loyalty that keeps Coca-Cola shares fizzing.
Another company in the same vein as Coca- Cola is restaurant giant McDonald’s Corp. (NYSE:MCD). The biggest fast-food seller in the world, McDonald’s serves up more burgers, fries and shakes on a daily basis than most restaurant chains serve up in an entire year. Over the past several years, McDonald’s outstanding top and bottom lines have been fed by hungry international consumers. The growth in international markets has helped MCD supersize their share price more than 300% during the past 10 years.
As citizens across the globe continue to get a taste of McDonald’s, investors likely will continue getting a taste of those huge MCD share price gains. Think of it this way: Recession or no recession, bull or bear market, people still are going to order Happy Meals — and that’s likely to keep MCD shareholders very happy.
Phillip Morris International
As more and more consumers around the globe become able to afford life’s little luxuries, more and more also are able to afford life’s little vices. Although it might not be the hip thing to do here in America, smoking cigarettes is a habit that’s still burning bright throughout the world. In fact, the habit is particularly robust in the emerging markets of Asia, and that’s helped tobacco giant Phillip Morris International (NYSE:PM) earn big bucks from international sales.
As the middle class in emerging Asia continues to grow, more people are likely to buy cigarettes, and that means more big profits for Phillip Morris International, regardless of whether the Dow is down 500 points or if the U.S. unemployment rate remains north of 9%.
The personal technology juggernaut has practically become its own asset class, and that’s kept Apple (NASDAQ:AAPL) shares tasting sweet even while the rest of Wall Street sours. The stock is up nearly 14.5% year to date while the S&P 500 now is down over 5% in 2011. It seems as though nothing can stop Apple from posting record earnings, and until we see a real change in the consumer’s palate for all things made by the tech giant, look for Apple to keep investors’ portfolios full of nutrition. Regardless of the general market’s woes, or a decline in the economy, an Apple a day in your portfolio will help keep the bear away.