These are confusing economic times, which makes picking stocks especially hard.
One week, investors were stung by disappointing jobs reports. Then came news that consumer confidence rose for a third straight week. Billionaire Warren Buffett, perhaps the greatest investor in history, recently said that the odds of the U.S. entering a recession were low. Not surprisingly, economist Nouriel Roubini,  known as “Dr. Doom,” sees trouble ahead for the U.S. because of the persistent problems in Europe among other reasons.
Though every company benefits when times are good, a select few have a broad array of products and services that appeal to both budget-conscious consumers and those with more cash to spend. That doesn’t make these companies “recession-proof” — whatever than means — but it does enable them to sustain themselves during economic downturns better than others.
Below are examples of what I am talking about. They are in alphabetical order.
Costco Wholesale (NASDAQ:COST)
- YTD: +6.51% (as of 6/8)
- Price Target: $87.65
- 6/8 Close: $88.74
The warehouse retailer beat Wall Street expectations in its most recent quarter, while new member sign-ups jumped 9% and renewal rates remained strong. The chain has something to offer all types of consumers.
If you have the space, Costco will sell you a large enough quantity of whatever you want, and at a price to make it worth your while economically. Nonperishable items such toilet paper are especially good deals. The company’s Kirkland brand products offer good value for your money. Grocery stores are unable to compete with Costco on price.
For customers in a buying mood, Costco offers great deals on wide variety of big-ticket items ranging from home appliances to caskets. It also provides travel services, assists with car buying and sells window treatments. Many small businesses, such as mom-and-pop restaurants, shop at the chain as well, a fact that may not be adequately reflected in its stock price.
Home Depot (NYSE:HD)
- YTD: +24.5% (as of 6/8)
- Price Target: $54.57
- 6/8 Close: $52.35
Unusually warm weather boosted the Atlanta-based retailer’s earnings in the first quarter, but Wall Street doesn’t expect a chill to set in anytime soon. Home Depot recently announced plans to raise its stock buyback program by $500 million, to $4 billion total, and reaffirmed its 2012 earnings guidance.
When times are good, consumers are more apt to hire contractors that frequent Home Depot for projects such as a new deck that they may have delayed during the Great Recession. The chain even finances projects and offers installation services.
Cash-strapped consumers will go to Home Depot for tools and supplies to do simple repairs and projects around their homes that might enhance their home’s resale value, such as planting flowers or painting.
- YTD: +29.91 (as of 6/8)
- Price target: $63.75
- 6/8 Close: $66.63
PetSmart is on a roll. The largest pet-supply retailer has beat Wall Street profit forecasts in each of the last four quarters and has posted gains in same-store sales for eight straight periods. First-quarter 2012 results were no exception, exceeding analysts’ expectations, and the guidance was also surprisingly good. Though Wall Street thinks the stock has run out of gas, I’m optimistic that PetsMart has room to grow.
As David Silver recently noted on Seeking Alpha, spending on pets has risen in recent years as pet ownership has held steady. Many people treat their pets like furry children. Anyone visiting a PetSmart during the holiday season will know this to be true.
Cash-strapped consumers like PetsMart because its prices on services such as dog grooming are competitive. The company has such a wide variety of products that consumers can spend as much or as little as they want, and find the brand of their choice. For those looking to splurge on their four-legged friends, there are parka ski coats that come in a variety of styles along with a mind-boggling lineup of squeaky toys.
Procter & Gamble (NYSE:PG)
- YTD: -5.94% (as of 6/8)
- Price Target:$71.12
- 6/8 Close: $62.75
All the hopes and fears of investors are reflected in the shares of the largest consumer-products company.
The Cincinnati-based company, which earlier this year announced a restructuring plan that called for the elimination of 5,000 jobs, has struggled this year. In April, it reduced its profit outlook for the year, citing rising commodity costs among other reasons.
Times are getting better. Commodity prices have dropped since then, and oil recently hit an eight-month low. Consumer confidence, which fell to a five-month low in May, may rebound if gas prices continue to remain low and the situation in Europe doesn’t veer out of control.
P&G, though, has such a wide variety of brands that it’s in a unique position to capture spending from budget-conscious consumers (Gain laundry detergent, Ivory skin care) to those more flush with cash (Tide, Aussie-style shampoo).
Royal Caribbean Cruises (NYSE:RCL)
- YTD: -2.14% (as of 6/8)
- Price target: $33.57
- 6/8 Close: $24.24
The cruise operator was hammered last quarter by events beyond its control: High fuel prices and the bad publicity the industry experienced after the deadly sinking of Carnival‘s (NYSE:CCL) Costa Concordia off the Italian cost. Things are starting to improve on both fronts for Royal Caribbean.
Oil prices are sliding downward, and the news of the shipwreck is starting to fade. Cruises appeal to budget-conscious travelers because they offer an economical way to visit numerous destinations in places like the Caribbean. Royal Caribbean is advertising deals starting at less than $400 a night. And of course, travelers with more cash to spend can find staterooms that go for several thousand.
Jonathan Berr has no position in the stocks discussed here. Follow him on Twitter @jdberr.