- A recent Time magazine cover story described it as, “The New Frugality”—the change in behavior, attitudes and even
values Americans are embracing as a byproduct of the “Great Recession.” Most of us have in some way altered our spending
habits as a direct result of the worst economic downturn since the 1930s. We also have been forced to alter our investing behavior,
as some of the best blue chip companies of the past are now teetering on the brink of bankruptcy.
So, what’s an investor to do now that we are living in a “Frugal Nation”?
The answer is to find the stocks that thrive in the new frugal environment. Of course, this is easier said than done, so to put
your mental gears in motion we’re introducing 10 stocks to buy in a recession. These “New Frugality” stocks could make
you a now that Americans are watching their pennies.
Next: Frugal Stock #1—SPDR KBW Regional Banking
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Frugal Stock #1: SPDR KBW Regional Banking
What’s the easiest way to not spend so much money? How about just choosing to save more? There’s been a boom in savings rates among
Americans since the economy ran aground in late 2008.As people realize that they just can’t spend ad infinitum, more money is now flowing into safe and secure investments such as CDs
and high-yield savings accounts. Some of the biggest and best yields are coming from regional banks. This is not the Citigroup’s ()
or the Bank of America’s (). No. We are talking
about very solvent, and very profitable regional financial institutions that do banking the old-fashioned way.One great way to get exposure to the best regional banks is via an exchange-traded
fund (ETF). The SPDR KBW Regional Banking ()
is a basket of the best-of-breed regional financial institutions. This fund uses a passive management strategy that’s designed to
track the total return performance of the KBW Regional Banking index.
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Frugal Stock #2: McDonald’s
One of the first areas of behavior that gets altered when economic times tighten is restaurant spending. Restaurant goers have always
looked for good quality, big portions and low prices in their dining establishments. However, the new frugality means that now more
than ever restaurants have to deliver on all three criteria lest they perish.So, what restaurants are appealing to a frugal nation? Let’s start with the largest fast-food chain in the country, McDonald’s ().
Low cost, consistency, and let’s face it, some darn good tasting burgers, fries and shakes, have made “Mickey D’s” one of
the leading restaurant chains. We’re not saying MCD is a recession-proof company, but it’s about as close as you can get. If you want
to supersize your investment returns during these lean times, you might want to put a Happy Meal in your portfolio.
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Frugal Stock #3: Panera Bread
Remember a few years back when low-carb eating was all the rage? Well, those days are gone, and a Frugal Nation is back to eating
bread in a big way. The biggest beneficiary of the back-to-bread craze is Panera Bread ().
While not exactly a fast-food restaurant, Panera isn’t quite a traditional sit-down restaurant either. Sandwiches, pastries and, yes,
some very tasty bread choices are all part of the appeal of this food seller.And in terms of the stock’s appeal with profit-hungry Wall Street, well, there is no doubt that bread is in. Panera shares haven’t
seen any kind of recession so far in 2009, having surged more than 20% in the first four months of the year.
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Frugal Stock #4: Cheesecake Factory
If Marie Antoinette where alive today, her famous line, “Let them eat cake,” might have been a very specific restaurant
recommendation rather than the ignorant and insensitive dismissal of peasant hunger.The cake here is the Cheesecake Factory (),
which despite the Great Recession is still a favorite among restaurant goers. And who can blame them? With ginormous portions delivered
at a reasonable price, getting the biggest bang for the dining buck is just what a Frugal Nation ordered.Oh, did we mention CAKE shares are up more than 60% in the first four months of 2009? Now that’s our kind of cake!
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Frugal Stock #5: Chipotle Mexican Grill
The final restaurant stock in our Frugal Nation Top 10 is upscale fast-food chain Chipotle Mexican Grill ().
This place reminds us of the old Yogi Berra adage, “Nobody goes there no more; it’s too crowded!”This McDonald’s () spin-off serves up great
tasting, healthy Mexican fare at prices so low even the most frugal of diners will say, olé! Chipotle now enjoys annual sales in excess
of $1 billion, and one reason is its focus on offering a healthier range of products based on naturally raised and organic ingredients.
In a Frugal Nation, value and price go hand in hand, and restaurants who can deliver both—like Chipotle—will be well positioned
to profit.Of course, as the four restaurant chains we’ve profiled here continue to profit, their stock prices will likely continue cooking
up plates of profits for investors.
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Frugal Stock #6: Amazon.com
Every nation must learn to exploit its waterways if it wants to flourish. And in a Frugal Nation, perhaps the biggest and best waterway
can be found in cyberspace. We’re talking here about Amazon.com (),
the “virtual river” that has become the vogue location to get whatever you need at the lowest price possible.One of the things that make shopping at Amazon.com such a smart, frugal choice is the lack of state sales tax. With sales tax rates
rising in the big states like California, careful shoppers are now realizing that Amazon.com offers them a much better value than
making the trek to their local retailer. Amazon.com is the place for frugal shoppers to save, and it’s a great stock to put on your
Frugal Nation portfolio shopping list.Amazon is one momentum stock that’s off and running.
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Frugal Stock #7: Google
Our next frugal stock might not seem like it belongs on the list, but we think we can make a good case that it does. It’s online
search firm Google ().This stock with a lofty price tag is one of the biggest beneficiaries of the new frugality. Why? Well, you can use Google’s search
engine to save a lot of money. More and more businesses have abandoned costly, broad-based marketing campaigns and are now turning
to search-based Web advertising to reach customers.Also, in an effort to save money, people are searching out the best price for items online. Although in many cases Amazon.com ()
is the discount seller of choice, there are other online retailers offering specific discounts on all kinds of items and services.
But unless you search them out through Google, you aren’t going to know where those bargains are. More searches for bargains means
more click-throughs for Google and its advertisers. This all translates into a stock that is perfectly positioned to benefit from
the frugal frenzy.
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Frugal Stock #8: Teva Pharmaceutical Industries
As Americans cut back on goods and services, there is one area of personal spending that isn’t so easy to trim. That area is medical
care, and, in particular, spending on essential medications. Fortunately, there are two firms on our Frugal Nation Top 10 list that
deliver meds at a discount.The first is generic drug maker Teva Pharmaceutical Industries ().
The company is the world’s largest generic drug manufacturer, and with more than $100 billion in patented drugs either already off,
or slated to come off patent and go generic between 2008 and 2012, Teva is in the driver’s seat when it comes to delivering drugs
to a Frugal Nation.The secret sauce that makes Teva a great stock going forward is their pipeline of proprietary drugs for central nervous system disorders.
Also, the company is extremely well managed, and its sales continue expanding as more and more doctors and patients make the switch
to generics.
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Frugal Stock #9: Perrigo Company
Another great frugal medication play is generic drug maker Perrigo Company ().
This is one of the largest manufacturers of private label, over-the-counter drugs in the world. You know the store-brand ibuprofen
tablets you buy at your favorite retailer instead of those more-expensive Advil tablets? Well, most likely they were made by Perrigo.With sales at discount retailers holding up due to the new frugality, more and more customers are putting Perrigo manufactured products
in their shopping carts. Like Teva Pharmaceutical Industries (),
this company is extremely well managed, with no debt issues. And from a demographic perspective, as more and more baby boomers need
more over-the-counter medications just to get them through the day, the future for Perrigo in this Frugal Nation looks very bright
indeed.
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Frugal Stock #10: Entertainment Property Trust
It seems as though no matter how frugal we become as a country, we still have to have our entertainment fix. Americans are virtually
addicted to watching movies, and we don’t mind spending our money at the theater. That’s why our final frugal stock pick is Entertainment
Property Trust (EPR), a real estate
investment trust (REIT) that develops, owns, leases and finances entertainment and related properties in the United States and Canada.
Its properties include megaplex movie theatres, entertainment retail centers, and destination recreational and specialty properties.Keep in mind that the modern movie industry was born during the Great Depression as an inexpensive form of entertainment. And when
you consider that movie sales hit record highs in January 2009, it seems like history does indeed repeat itself. And if you’re looking
for a good frugal stock play that also comes complete with an outstanding dividend yield of about 12%, then EPR just might be for
you.
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Let’s Get Frugal
You should now have a few new ideas about how you can make your portfolio Frugal Nation friendly.
Remember the old market mantra, “The trend is your friend”? Well, the trend in America is toward the new frugality, so
why not make the renewed focus on all things frugal a part of your investment strategy?By doing so, you might be in a position where frugality becomes a choice rather than a necessity.
