Counter-cyclical stock

The economy alternates between periods or cycles of growth and contraction (aka recession). When the economy enters a recession. economic activity slows. Most corporations experience a drop in sales and profits, and consequently stock prices. However, certain types of corporations actually do better when an economy does poorly. These include dollar stores, pawn shops, payday lenders and collection agencies.

Suitable for Investors who monitor economic cycles and want to not just withstand an upcoming recession, but actually benefit from it.
Examples FirstCash (FCFS), Dollar Tree (DLTR), PRA Group, Inc. (PRAA), Public Storage (PSA).
In the news CFPB’s new federal rule on payday lending expected soon – August 17, 2017

First Cash to buy Cash America for $994 million in pawn deal – April 28, 2016

Dollar store fight gets nastier – September 11, 2014

Startup offers payday advances without the pesky loan-sharking – August 11, 2014

Ill. AG fighting debt-collection warrants – November 22, 2011

High Bank Fees Give Wal-Mart a Money Aisle – November 7, 2011

Not Unbanked: Untapped. Underserved Spend $45B On Financial Services – November 2, 2011

Weak Economy Is A Boon For This Pawn Services Company – November 1, 2011

Short-Term Lenders Seize The Day – October 19, 2011

Connections These corporations are the opposite of cyclical corporations.
Explorations
  1. Research how pawn shops make money when a person pawns his or her property. Also research how a payday loan is made and paid back. Next, visit the summary of the FDIC National Survey of Unbanked and Underbanked to learn who these people are. Finally, using the research, debate whether investing in counter-cyclicals is in any way unethical or immoral (and whether it is the job of investors to make ethical or moral judgements).
  2. Overlay the chart of the Dow Jones 30 or S&P 500 with several counter-cyclical stocks. See if they did indeed rise when the overall markets were falling during the last few recessions.
A final word

 

Just because an economy recovers doesn’t mean counter-cyclical corporations have to do poorly. For example, it’s possible that there may be a long-term trend from house to apartment downsizing that continues to benefit corporations like Public Storage.

 

2017-09-05T00:50:37+00:00