How to Find Stocks for a Recession

Investors are as worried about recession as the Federal Reserve is about inflation, and at the first signs of a slowdown, stock pickers and regular investors start thinking about how to protect their portfolio from the incipient slowdown. While a recession doesn't necessarily mean all sectors perform poorly, it is a challenging time to hold stocks. However, if you know how to invest during rough patches, you can survive, if not thrive, during a recession.

Instructions

1. Pick stocks that have huge double- or triple-digit growth. In spite of other drawbacks a company may have, if you invest in stocks with massive growth, a slowdown will not affect the growth of the stock very much. Make sure this growth, however, is not at the expense of other factors.

2. Look for stocks that are undervalued based on the company's assets and cash flows. Find good stocks that are disliked during a recession because of external factors and not because of the viability of the company.

3. Opt for companies that have economic independence and are not vulnerable to the fluctuations of the U.S. economy. Good examples are debt collection agencies and companies that have a good part of their revenues coming from overseas.

4. Select defensive stocks that focus on drugs or food. These goods are necessary even in down times, and people don't stop eating just because there is a recession.

5. Protect yourself with dividend stocks. Companies that offer a high dividend yield will be like shelter in a storm and will give you income even in difficult times.

Tips & Warnings

• Know that even in a recession, there is always a part of the economy that is working. Try to find the sector that is healthy in downtimes.

Resources

• Seekingalpha.com is a site that features the best of the financial blogs.
• Find informative articles from the best minds in finance at MarketWatch.com.