In late 2008 and early 2009, the stock market and American economy were undergoing tremendous upheavals. Bear Stearns and Lehman Brothers had collapsed, and the financial system was in disarray. Washington bailed out automakers and pledged nearly $800 billion in stimulus funds. Unemployment went from 5% to over 9% in less than a year.
Those were scary times. And for many investors, we are seemingly on the cusp of another market shock that could be equally severe.
Now, the burden of big debts could bankrupt Greece and break up the entire euro zone. Now, President Barack Obama has proposed another $400 billion to jump-start hiring as unemployment remains stuck at 9%. Banks still are battered, consumers are spooked and the market is taking us for a white-knuckle ride again.
How can investors protect themselves? And what lessons did we learn from the previous crash?
One important fact to acknowledge right out of the gate is that market timing is tremendously different than market hindsight. Yes, if you went to cash in May 2008 as the market peaked and sat out until the dust settled, you could have avoided a tremendous loss. And yes, if you had the expertise and foresight to spot the bottom in March 2009, you would have enjoyed the 60% run for the major indices across the next nine months.
But be realistic. Hanging your retirement funds on two calls like that is a dangerous business.
Rather than deciding when to stomp on the gas or slam on the brakes, I believe long-term investors are better served by remaining invested and simply getting defensive in times of turmoil. By focusing on stocks that weather the downturn better than the rest of the market, you can limit your losses and still share in the recovery when things stabilize.
Think that’s impossible? Well here are here are five blue chips that both weathered the financial crisis much better than their peers and managed to rally strongly off the market lows. It’s realistic to think that in the even of another crash, they would hang tough yet again.
- 5/1/08 to 5/1/09 return: -19% vs. -36% for the Dow
- 5/1/08 to present: +38% vs. -12% for the Dow
While “Web 2.0” companies are garnering much of the attention and tech laggards like Cisco (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) are the butt of many jokes, one of the oldest tech stocks is one of the sector’s best performers during the past few years. IBM (NYSE:IBM) is up handily since May 2008, even though the market remains in rough shape. Big Blue still is picking up steam, too, with blowout Q2 earnings in July that boasted big EPS and revenue gains along with strength in all four divisions — technology services, business services, software and systems. It’s a high-tech world, and IBM continues to be a mainstay for many businesses even as the economy remains largely sluggish.
- 5/1/08 to 5/1/09 return: -12% vs. -36% for the Dow
- 5/1/08 to present: +24% vs. -12% for the Dow
Lest you think Visa (NYSE:V) is a financial stock stuck in the mire with the big banks, investors should remember that this credit and debit card brand is a processor of payments — not a lender. It makes its money by moving other people’s money around. And as online bill paying and mobile payments surge in the developed world and emerging markets turn to plastic instead of cash to pay for goods and services, Visa is seeing extraordinary growth. Total electronic payments have risen more than 30% in the past two years. That growth helped Visa hang tough amid the market mayhem of 2008-09. And since the news that regulators wouldn’t strangle Visa’s revenue stream with a draconian cap on debit card fees, the stock has been surging in 2011 — up almost 25% year-to-date.
- 5/1/08 to 5/1/09 return: -14% vs. -36% for the Dow
- 5/1/08 to present: -2% vs. -12% for the Dow
During the past several years, cash-rich Verizon has emerged as the frontrunner in mobile telecom. It boasts more than 40% of devices running the Google (NASDAQ:GOOG) Android platform, and this year it finally started carrying the Apple (NASDAQ:AAPL) iPhone. It is the largest carrier in the nation, and now that a merger between AT&T (NYSE:T) and T-Mobile is facing federal antitrust lawsuits, it likely will stay that way. The company weathered the 2008-09 downturn remarkably well — and though it is flat since spring 2008, it offers a mammoth 6% dividend. A payout that large is very attractive as 10-year T-Notes yield under 2% right now.
- 5/1/08 to 5/1/09 return: -7% vs. -36% for the Dow
- 5/1/08 to present: +47% vs. -12% for the Dow
In recent years, McDonald’s (NYSE:MCD) has had nowhere to go but up. The stock has tripled since 2004 when current CEO Jim Skinner took the helm, thanks to a 50% increase in sales per store in the same period. The stock did just take a hit recently with global same-store sales that didn’t hit expectations, but it was the 100th straight month of growth in same-store sales, with 3.5% gains. While that might not have been as brisk as some investors were looking for, there just aren’t a lot of high growth options right now.
What’s more, McDonald’s knows how to protect its balance sheet, with EPS set to double from $2.31 in fiscal 2007 to a projected $4.60 or so in 2011 compared with revenue growth of about 60%, from roughly $26 billion in 2007 to a projected $40 billion or so this fiscal year. That proves McDonald’s can grow earnings impressively even if revenues don’t grow at a significantly slower rate. Throw in a 3% dividend yield and you’ve got a keeper in McDonald’s.
- 5/1/08 to 5/1/09 return: +2% vs. -36% for the Dow
- 5/1/08 to present: +25% vs. -12% for the Dow
Clorox (NYSE:CLX) makes much more than its namesake bleach and is a consumer products powerhouse behind brands that include Hidden Valley Ranch dressings, Kingsford charcoal and Glad storage bags, to name a few. Clorox was embroiled in some drama this summer as iconic investor Carl Ichan offered to buy out the company for $10.2 billion — though many think it was just a stunt to bait other buyers into a sweeter offer.
The board deflected Icahn’s bid, but don’t think that this signals CLX is a bad company or has bad management. Shares have performed nicely amid the market turmoil. A hefty 3.5% dividend on top of that also is quite attractive.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.