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Meet the new defensives Add to ...

There is a new kind of recession-proof stock for worrywart investors, but it certainly didn't look recession proof at the start of our economic woes.

Demand for high-end yoga wear, iPhones and online retailing has proved to be virtually unassailable during these tumultuous times, surprising many observers.

Just take a look at Lululemon Athletica Inc. LLL-T This week, the yoga-retailer bumped up its third-quarter profit target by about 50 per cent and raised its sales forecast by about 14 per cent. Part of the increase is thanks to management improvements in areas like inventory controls. But, just as important, demand has held up.

"The consumer who is buying this product is affluent," said Richard Jaffe, a retail analyst at Stifel Nicolaus. "They're spending $200 on a workout outfit, they have a fair amount of free time to work out regularly and they are committed to their sport. We're talking about a very small segment of the population."

In other words, what recession?

Meanwhile, the share price has nearly doubled over the past 12 months, which is about four times the pace of the S&P/TSX composite index over the same period. Since hitting a record high in June, 2008, the benchmark index is down 28 per cent (even after the recovery since March), while Lululemon shares are up about 1 per cent.

Apple Inc. AAPL-Q is in a similar position. Demand for its iPhones, iPods and computers have held up remarkably well during the recession, despite some initial concern that demand would evaporate with plummeting consumer confidence and surging unemployment. Consumers have shown they're willing to spend their cash on items they covet.

The shares recently hit a record high. Since the S&P 500 began to tumble in October, 2007, Apple shares have risen a total of 16 per cent, while the index has fallen 33 per cent - a spectacular 49-percentage-point outperformance.

Google Inc. and Amazon.com Inc. are in similarly recession-proof states. Amazon.com's shares also recently hit a record high that, yes, surpassed the days of the technology bubble of the late 1990s.

The flip side to this trend, though, is that those stalwart defensive stocks that investors thought could be counted on for steady gains - utilities and consumer staples - have largely disappointed.

In Canada, Shoppers Drug Mart Corp. shares have fallen 24.5 per cent since June, 2008. Tim Hortons Inc. shares have barely budged. In the United States, Procter & Gamble Co. - think soap and shampoo - has tumbled about 20 per cent since October, 2007.

"The defensive stocks did what they were supposed to do when everything was going down," said Murray Leith, director of research at Odlum Brown. "They went down less.

"I think what has come as a bit of a surprise is just how strongly the cyclical stocks have moved up. In some cases, they got so wiped out on the way down that they're going to have very impressive percentage rallies on the way up, just by the nature of the stocks getting so wiped out."

This certainly applies to Lululemon, Apple and Amazon.com, whose share prices were decimated during the depths of the stock market meltdown.

But what separates them from other stocks is that the fears surrounding their earnings and sales were overblown, to say the least - and the initial downturn in their share prices was nothing more than a blip, albeit a severe one.

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