A Great Stock To Own In A Bad Market

Amy Calistri's picture

Friday, March 18, 2016 - 10:30am

by Amy Calistri

On September 15, 2008, the fourth-largest investment bank in the United States declared bankruptcy. Lehman Brothers had been in operation for 158 years and had survived world wars and the Great Depression. But the storied bank couldn't make it through the depths of the financial crisis of 2007 and 2008. And after Lehman fell, people wondered how many more financial institutions would crumble.

One week later, legendary investor Warren Buffett announced that he would invest $5 billion into Goldman Sachs (NYSE: GS), virtually saving the firm. A week later, Buffett invested $3 billion in General Electric (NYSE: GE), signaling to the market that he had faith in the resilience of the American economy. 

Buffett is a nice and generous man. But he doesn't invest out of charity. He expects to make a profit -- and he's good at it. From 1965 through 2015, Buffett has increased the per share book value of his company Berkshire Hathaway (NYSE: BRK-B) by 798,981% -- a compounded annual gain of 19.2%.

Buffett Has Faith In The Future... But He's Also Prepared For The Worst
Buffet continues to have faith in the American economy. In his recent letter to Berkshire Hathaway's shareholders, he wrote about the negative sentiments pervading this political cycle. He said:

  It's an election year, and the candidates can't stop speaking about our country's problems (which of course, only they can solve). As a result of  this negative drumbeat, many Americans now believe that their children will not live as they themselves do.

That view is dead wrong: The babies being born in America today are the luckiest crop in history.

American GDP per capita is now about $56,000. As I mentioned last year, that -- in real terms -- is a staggering six times the amount in 1930, the year I was born, a leap far beyond the dreams of my parents or their contemporaries. U.S. citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930. Rather, they work far more efficiently and thereby produce far more. This all-powerful trend is certain to continue: America's economic magic remains alive and well.

Buffett's long-term outlook continues to be sunny -- but he does see some near-term clouds on the horizon. In an interview with CNBC on February 29, Buffett said that the state of the many businesses he owns through Berkshire Hathaway were "a little softer in many places than I anticipated four or five months ago."

Buffett isn't the only one seeing some softening in the U.S. economy, either. Recently, New York Federal Reserve Bank President William Dudley said that his economic outlook "may be starting to tilt slightly to the downside" and that "on balance, I am somewhat less confident than I was before."

This may give you pause about investing in the market today, but also remember it was Buffett who said, "I buy on the assumption that they could close the market the next day and not reopen it for five years."

So even if the economy does pause in the near term, there are a number of sectors that are resilient in challenging times. Companies that offer necessary services such as utilities and telecoms tend to be steady performers. While big luxuries fall by the wayside, people are slow to give up their little luxuries and vices, whether it's a morning latte at the coffee shop or a beer after work.

I'm pretty frugal by nature. But there are some products I try never to be without. If I had to put together a list, something like toilet paper would be near the top. This necessity hasn't been underestimated by investors.

As you can see in the chart below, the consumer staple and toilet paper manufacturer Kimberly-Clark (NYSE: KMB) has outperformed the market year to date, as investors sought out this traditional safe haven.

Kimberly-Clark Is Outperforming The S&P By 7.1 Percentage Points

I like Kimberly-Clark. It's a great dividend grower. And it's one of the few dividend aristocrats that is not represented in the Vanguard Dividend Appreciation Fund (NYSE: VIG), which I hold in my Daily Paycheck portfolio. I'm a little reluctant to add it just now though, because roughly half its revenues are generated outside the United States. And the relative weakness of foreign currencies has been a bit of a headwind for the company.

There is, however, a toilet paper manufacturer that sells its products only in the United States. As a small company, it is riskier and more volatile than consumer staple giants such as Kimberly-Clark. But it also has some advantages -- including a higher current yield. In fact, its 5% yield doubles that of Kimberly-Clark.

I can't reveal the name of the pick with you today because my Daily Paycheck readers and I recently bought it for our portfolios. It simply wouldn't be fair to my premium subscribers. Still, you can't go wrong with owning a stock like Kimberly-Clark during uncertain times.

Over the past six years, my subscribers and I have used stocks like this to build a portfolio of the best income securities on the planet. It's generated more than 2,185 "paychecks" during that time for more than $96,000 -- and those numbers grow by the day. To learn more about my strategy and get the names and ticker symbols of my latest picks, simply follow this link.

Amy Calistri does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.