The U.S. economic recovery has slowed a bit in recent months, sparking new fears of a double-dip recession.
I think the double-dip fears are probably a bit overhyped. While the pace of the recovery hasn't been as rapid as it was in the second half of 2009 or the first quarter of 2010, several key areas of the economy - including the industrial and manufacturing sectors - are still growing at a solid pace. It's important to remember that recoveries don't move in a nice, steady line; look back at past rebounds and you'll see that every recovery has fits and starts.
Still, many investors believe the double-dip forecasters. Since May 1, investors have pulled more than $49-billion (U.S.) from equity funds, according to the Investment Company Institute. You can bet many did so because of fears of another economic downturn. What if they're right, and a double dip is coming?
If it is, it's important to remember that a downturn in the economy doesn't mean tough times for all companies. And, at the end of the day, stocks are as good or bad as the companies behind them. That's what history's greatest investors - strategists like Benjamin Graham, Warren Buffett, and Peter Lynch - have all known.
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An Investor's Guide to Understanding the Economy by Gary Rabbior:
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Even in the recent "Great Recession" - one of the worst downturns the U.S. has ever seen - some companies kept growing.
Take transportation and logistics firm C.H. Robinson Worldwide, based in Eden Prairie, Minn. While most companies were scrambling to minimize earnings declines or losses in 2008 and 2009, Robinson (with a $10.8-billion market cap) was increasing earnings per share in both years.
Robinson's history of earnings growth in tough times goes back further. It also increased EPS in 2001, the year of the previous U.S. recession. It has increased per-share earnings in every year of the past decade. Robinson isn't alone; a number of companies have boosted EPS in each year since 2000.
Of course, that doesn't mean it has been a decade's worth of smooth sailing for these companies' stocks. When recessions or bear markets hit, emotions run high, and fearful investors can and will dump the shares of even solid, proven companies. Often, however, the stocks of steady earners will hold up better than others during downturns. Such was the case with C.H. Robinson.
Other times, they'll get hit as hard (or harder) during downturns than the broader market, but then bounce back swiftly once the downturn dust settles. That was the case with Aéropostale, the New York-based teen clothing and apparel retailer.
Along with other retailers, Aéropostale was hammered in late 2008 as the global crisis sparked fears that consumers would tighten their purse strings for the long term. But when investors realized the fears were overblown, Aéropostale surged upward, and is well ahead of the S&P since the crisis flared up in September, 2008.
Given the concerns about a potential double dip, I thought I'd take a look at some companies that have increased EPS in each year of the past decade, and get approval from one or more of my Guru Strategies (each of which is based on the approach of a different investing great).
I found several steady earners that make the grade, including Aéropostale and C.H. Robinson. Here's a look at those two, and a couple other top "steady Eddies" you can rely on.
C.H. Robinson Worldwide
Robinson gets high marks from an interesting tandem of strategies, my Warren Buffett-inspired value approach and my James O'Shaughnessy-based growth model. The Buffett-based approach looks for firms with lengthy histories of earnings growth, manageable debt and high returns on equity. Robinson's excellent earnings track record fits the bill, as do its lack of any long-term debt and 25.9 per cent average 10-year return on equity (ROE).
My O'Shaughnessy-based growth model, meanwhile, likes Robinson's strong earnings history and its low 1.27 price-to-sales ratio and solid 67 relative strength indicator.
J.M. Smucker Co.This Ohio-based jelly-and-jam giant makes a variety of products and has a market cap of about $7-billion. My Peter Lynch-based model likes its solid 13.8 per cent long-term growth rate, and a price-to-earnings divided by growth ratio (P/E/G) of 0.85, adjusted for yield. That comes in under my Lynch-based model's 1.0 upper limit, a sign the stock's a good buy.
Aéropostale Inc.
With a $2.1-billion market cap, this company gets approval from three of my models. My Lynch-based model likes its 33.6 per cent long-term EPS growth rate (I use an average of the three-, four-, and five-year EPS growth rates) and low 0.27 P/E/G. My Buffett model, meanwhile, likes its strong earnings history, lack of debt and 32.9 per cent average 10-year ROE. And the model I base on hedge fund guru Joel Greenblatt's writings likes Aéropostale's 22.9 per cent earnings yield and 71.6 per cent return on total capital.
Infosys Technologies
This India-based information technology giant, with a $34-billion market cap, gets strong interest from my Buffett-based approach. In addition to its impressive earnings history, it has no long-term debt and has averaged a 31.9 per cent ROE over the past decade.
Disclosure: I'm long SJM, INFY, and ARO.
John Reese