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In a brutal market, this stock has been a star. In fact, since the sell-off started in late July the S&P 500 is down 17.5%. This stock is actually UP 7.4%.
And that’s when our economy is flirting with the possibility of another recession, unemployment is above 9%, and an entire foreign country could be on the verge of a default.
You see, companies that are banking on strong earnings growth are nice when the economy is prosperous. It makes sense. When times are good consumers have no problem spending money on non-essential goods, boosting corporate profits — and share prices — almost across the board.
But consumers start to cut spending when they feel the pinch of a recession. And those companies reliant on an increase in discretionary spending can see their earnings — and share price — sink like lead balloons.
Some companies, however, make products that consumers always buy, regardless of the economy. Though they may not be exciting, these companies are the ones you want to hold in a bad market.
These companies are certainly not going to create the next iPod. But with the S&P down more than 17.5% in two months, most “boring” stocks have held up well.
Take Kimberly-Clark (NYSE: KMB), for example. KMB makes paper-based consumer products like facial tissues and toilet paper. You probably recognize some of their brands like Kleenex and Cottonelle.
Paper products aren’t exciting, but they do see consistent demand no matter what the broader economy is doing.
It’s that kind of inelastic demand that’s led KMB’s stock price to outperform the S&P 500 by close to 21 percentage points since the sell-off began in late July. In fact, since the sell-off began, the stock is UP. Just take a look at the graph below:
In the interest of disclosure, I should tell you that I own shares of Kimberly-Clark in my $100,000 real-money Stock of the Month portfolio. I originally added the shares back in June of 2010. Since then, it’s been one stock I haven’t had to worry about.
Part of the reason is that its “boring” business of selling toilet paper and tissues also helps power one of the steadiest dividends on the market.
The company has raised its dividend like clockwork for the past 39 years. In fact, in the past 10 years alone KMB has raised its quarterly dividend by 154%.
Every share bought just five years ago has paid out $12.45 since, providing a 23% gain on dividends alone.
Buying shares of KMB now would lock in a yield of 3.9%. That may not sound like a lot, but considering that 10-year Treasuries yield less than 2% and a savings account earns next to nothing, it’s not a bad play for income investors looking for a safe bet with a decent yield.
Risks to Consider: During the 2008 financial crisis, KMB lost more than 20%. But that was during a time when the S&P 500 lost more than 55%. So even though KMB fell significantly, it was no where near as drastic as the decline in the broader market. That being said, I think we can expect KMB to hold up well in all but the most extreme sell-offs.
Action to Take –> And consider that right now we’re seeing high unemployment, concerns about a recession, and the continuous angst about government deficits. That’s a lot of worry. You might sleep better owning KMB.
[Note: As I said, I own shares of KMB in my real-money Stock of the Month portfolio. So far it's been my best performer in the market downturn. With that in mind, in my October issue I decided to buy another pick that follows along the same lines. It's boring, sees inelastic demand for its product no matter the broader economy, and has outperformed the market in the sell-off. For more information on Stock of the Month, including how to receive my latest issue, visit this link.]
– Amy CalistriSource: StreetAuthority
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