Buy Like Buffett: The Sector that Thrives During Economic Booms and Busts

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A stagnant economy is the enemy of both the long term stock and bond investor. Stock prices tend to remain flat as corporate earnings fall into a predictable pattern failing to impress Wall Street investors. Most consumer related sectors like retail, technology, and construction tend to get stuck in a trading range. Investors are left looking for safe places that will produce a solid return for their money.

There is one sector that tends to thrive during these times and contains stocks that belong in the portfolio of every investor. Investors can bank on this sector to provide low to moderate growth and increase earnings during booms and busts. Consumer Staples

The sector that is the most reliable for investors is consumer staples. The consumer staples sector consists of those companies that sell the products that you just can’t live without. You may be thinking of a flat screen TV or an iPhone but those items are actually luxuries. A staple is an item that you depend on for your survival and to get through your daily life.

It doesn’t matter if your bank account is running over with cash or bordering on bankruptcy, you will still purchase basic necessities like soap. Some other examples of consumer staples are toothbrushes, toothpaste, toilet paper, laundry detergent, deodorant, and razors. These are the items that you buy no matter how the economy is doing. They sell just as well during depressions as they due during growth spurts.

Consumer Staple Stocks

Investors can benefit from the need for these products as well by buying consumer staple stocks. There are a few companies that dominate the consumer staples sectors by selling a large amount of these products. The companies are huge conglomerates with lots of brands and product offerings sold at the big box retailers and grocery stores. The best part is that many of these companies generate huge cash flows.

Blue chip consumer staple companies like Proctor & Gamble, Johnson & Johnson and Kimberly-Clark are all high quality stocks that should find their way into the portfolio of any investor. Investors are also rewarded with consistent dividend payments as these stocks have the earnings power to keep paying dividends and consistently increase dividends over the next few years. All three are paying yields over 3% which helps to put cash back into investor’s profits.

Consumer staple stocks are an appropriate investment vehicle for older investors looking for fixed income and younger investors looking for core portfolio holdings.

Mark Riddix is the founder and president of New Horizons Financial Management, an independent investment advisory firm that provides personalized investing and asset management consulting. Mark is a regular contributor to Seeking Alpha and has written financial columns for Baltimore and Washington, D.C. area newspapers. Mark publishes his own financial blog, BuylikeBuffett.com and has written the book Your Financial Playbook.

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