Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Beating the Stock Market with Utilities

Monday, December 10th, 2012
By for Profit Confidential

Beating the Stock MarketNo business is recession-proof, but there are lots that are recession-resistant. In terms of your stock market portfolio strategy, it certainly pays to have a few names that fit into the recession-resistant category. The U.S. economy typically experiences a recession about once every five or six years.

You might consider a utility company or possibly even a brewery as being a recession-resistant business. The Southern Company (NYSE/SO) stands out in the utility sector as having a great long-term track record on the stock market. For sure, the company isn’t growing as fast as an Internet start-up, but what it does offer is consistency of revenue and earnings growth—even during recessions. The company’s stock market chart appears below:

SO southern co stock market chart

Chart courtesy of www.StockCharts.com

A company doesn’t have to be large to be a recession-resistant business. Certainly a large-cap company has more economies of scale to weather the storm, but what’s more important is the kind of business a company is in and how it is managed.

AZZ Incorporated (NYSE/AZZ) is a small-cap company that manufactures and sells electrical components to utility companies. (See “The Debt Demon Lurks—It’s Still Out There Waiting to Strike.”) On the stock market, the company’s share price has been a solid winner for five years straight. It recently split its stock two-for-one and its shares took off. AZZ’s stock market chart is below:

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AZZ Azz, Inc stock market chart

Chart courtesy of www.StockCharts.com

A lot of people expect the U.S. economy to experience another technical recession next year or in 2014. It’s a good assumption to plan for because of the country’s track record. From the investor’s point of view, part of the attractiveness of a recession-resistant business is dividend income. I think dividends will be crucial over the next couple of years, because I don’t expect much in the way of capital gains.

Over the last 10 years, the Utilities Select Sector SPDR (NYSEArca/XLU), an exchange-traded fund (ETF) that holds most of the biggest utility companies in the U.S., has been far more volatile than Southern Company. A lot of stock market investors might be put off by the utilities sector as not offering enough growth. Pull up a long-term chart on Consolidated Edison, Inc. (NYSE/ED) and factor in dividends, and minds will change quickly.

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Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. is a Senior Editor at Lombardi Financial specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. Add Mitchell Clark to your Google+ circles