For most investors, the answer is probably no. However, for those investors with a stomach for some risk, a deeply depressed market can be an opportunity.
To be certain, investors near or at retirement should probably avoid risk and concentrate on preserving as much of their invested capital as possible.
For younger investors, the possibility of picking up some beaten down stocks of great companies is something to consider.
When the stock market reverses out of a bear and begins moving back to growth, those companies that have a business model for the recovering economy may score impressive gains.
Of course, the trick is identifying those companies before the price takes off. In a post-recession economy, which companies will be in the best position to take advantage of growth opportunities?
Here are some guidelines to help you think about potential winners:
- Consider large-cap companies with low debt and a large horde of cash. These companies will have the market leverage to seize market share because they will not need the credit markets to move.
- Labor-intensive companies may have a large pool of potential employees to choose from thanks to high unemployment numbers. A large unemployed or under-employed labor pool will help hold down labor costs for many businesses.
- Recessions are usually devastating on retailers. Small retailers often fail, never to return. Even large retailers can fall. Some will recover, but many will not. When consumers move back towards more normal purchasing patterns, retailers will profit, especially those carrying larger durable goods such as major appliances and so on.
- A more risky investment, but one with huge payoff potential, is in the green energy movement. This includes alternative energy (wind, solar, bio-fuels, and so on) manufacturers and companies provided energy efficiency solutions. The shooting stars will be young companies and startups that can navigate government incentives and international markets.
- The financial services industry is absolutely necessary to move the economy forward. However, companies offering more transparency and fuller disclosure of risks will find investors drawn to them. This leaves the door open for younger companies to grab market share from what may be left of the old guard.
This is not an exhaustive list, but it should help you begin thinking about looking for potential winners before the recession ends.
