The recession goblins are invading Europe’s shores, and the fear over a eurozone takedown of global equity markets is beginning to become reality. Stocks in the U.S. have slumped about 4% so far this week, while European stocks have fallen approximately 5%. That decline was spurred in part by fresh warnings over the potential impact of the euro zone’s debt crisis on the global economy and banking system.
Ratings agency Fitch cautioned this week that U.S. banks could be “greatly affected” if Europe’s debt crisis isn’t resolved quickly. But if the region rolls over into recession, the impact will be felt in multinational companies of nearly every stripe. In “These U.S. Exporters Could Get Stuck in Europe’s Muck ,” I discussed some sectors and specific companies that are particularly exposed to Europe’s woes.
On the flipside, to insulate your portfolio from a potential European debt shock, one good strategy is to hold equities that have little or no European exposure. That means choosing good old-fashioned U.S. companies that do all of their business right here at home. Toward that end, here are two recession-resistant sectors investors should check out.
The first sector is deep-discount retailers. One of the best of breed here is Family Dollar Stores (NYSE:FDO). It recently reported better-than-expected earnings for its fiscal fourth quarter, with same-store sales jumping 5.6% and earnings surging 18% year-over-year.
Like other bargain-store retailers — e.g. Dollar General (NYSE:DG), Dollar Tree (NASDAQ:DLTR), 99 Cents Only (NYSE:NDN) and Big Lots (NYSE:BIG) — Family Dollar’s revenue has steadily climbed over the past several years as consumers still rattled by the Great Recession continue looking for the best bang for their buck. Simply put, if Europe’s debt issues do indeed force the region into recession, a good place to seek safe harbor will be homegrown recession-busting retailers.
Another domestic sector completely insulated from Europe, and that’s also collecting big profits, is energy/power generation companies. Standout names include American Electric Power (NYSE:AEP) Constellation Energy Group (NYSE:CEG) and Duke Energy (NYSE:DUK).
The thesis here is that no matter what the euro zone’s GDP is next quarter, Americans are still going to need the same amount of electric power and natural gas as they’ve always needed, and perhaps more.
Disclosure: At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.