Investors have once again become confident in high growth stocks that are economically sensitive. This is despite the fact that first-quarter GDP numbers came in flat and retail sales growth is decelerating. Investors are of the belief that these weak numbers are a result of lousy winter weather, and that Americans will be more confident and willing to spend now that this is no longer an issue.
But the fact remains that Americans are earning less money and they are spending more money on the things they need such as gasoline, the price of which is steadily climbing towards its 2008 high, and food, the price of which has also been rising this year. Americans also face higher taxes and higher healthcare costs.
Furthermore, stocks are generally expensive, and investors justify this with the excuse that interest rates are low so they should be willing to accept lower returns on equities. But what happens when interest rates rise? If the logic for buying equities rests upon low interest rates, then even a small hike in interest rates resulting from Federal Reserve tapering can result in a sharp decline in equity prices.
Therefore, I think investors should be looking at quality defensive companies that are likely not going to rocket higher, but they are going to generate stable cash-flows over the years even in a weak economic environment. The following stocks fall into this category, and I suspect that they will not just survive economic weakness but thrive in it.