Hello and welcome to this week's edition of Money Talk Monday! The Dow slid another 150 points or so this week, but that's OK. That just means everything is still on clearance. This is no time to put the wallet away. I'm going to talk today a little bit about some precautionary moves in a time like this. I know that the general rule of thumb is that "chicks dig the long ball", but if I may quote a tried but true adage, "sometimes the best offense is a good defense."
During a recession, or even a correction, the stocks that generally perform the greatest (or the least worst) are stocks that supply goods that have inelastic demand. A good with inelastic demand, as you may remember from your finance class, is a good that generally carries the same demand regardless of the price. For example, a commuter is going to purchase gas whether the price is $2.50 per gallon or $3.50, but would more likely pass on an airline ticket that is above average price. During a recession, even if the price of a good does not change, the average citizen carries less purchasing power, so the goods with the most inelastic demands will fare the best.
Now that we have a better understanding of the term, what is a consumer good with very inelastic demand? I can't think of anything more inelastic than the products we are addicted to. I'm thinking cigarettes and beer. Anheuser Busch has seen a decline in sales over the past two decades, so I couldn't really recommend them. Sam Adams seems like they are a company on the rise, but a recent increase in the cost of hops could hurt them. Then we come to Miller Lite, which is operated by South-African Brewing Company, which oddly enough is owned (28%) by Phillip Morris, a cigarette company! So we have cigarettes and beer under the same ticker...I'm in! Phillip Morris, in fact, has always beaten the odds, whether it be litigation or Truth campaigns, and there is no end in sight. The company is as strong as ever and as historically provided a hefty dividend (which we will of course reinvest).
The other vice Americans can't get their hands off, of course, is oil. Regardless of the price of a gallon, we are still going to fill up our tanks and neglect public transportation. You really can't go wrong with any of the big oil companies like Exxon Mobile, Royal Dutch Shell, or Conoco Phillips, but at the moment, I prefer British Petroleum. The company is currently near it's 52-week low and offering a higher yield than their counterparts. Plus, at the end of the year, you'll receive a Foreign Tax Credit for the dividend tax you pay during the year, and that's always fun.
Don't feel guilty about investing in these companies. You're not investing in cigarettes, beer, and oil- you're investing in companies for a share of their earnings. And if "The Man" is going to continue to supply the world with these poisons, well, it wouldn't hurt to make a buck off it, too.
Jared Fischer is a Graduate student at Saint Louis University. He is getting his Masters in Accounting. He has traveled all over the world is an expert on saving money. He is straight and to the point when it comes to giving you the most bang for your buck. He is an exclusive writer on Business on the Mound. If your an entrepreneur please Come & Pitch Your Business or give suggestions to other small business owners in the business world.
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