Start to Batten Down the Hatches
For today, I will leave the debate to other contributors as to whether the U.S. is falling back into recession. If it is, however, it is time to pepper your portfolio with companies selling inferior goods. "Inferior goods" is not a judgment on my part; this is a term from economics referring to products that people trade down to when money is tight. When the economy slows, names like Wal-Mart (WMT) and McDonald's (MCD) shine. Another sector that thrives is payday loan/pawnshops.
There are a number of "alternative financials" plays, but one that I stumbled upon recently that looks very intriguing is Cash Store Financial Services (CSFS). CSFS is the market leader in Canada's payday loan market, with 36% market share and 586 stores. The company has struggled over the last few years with falling return on equity and reduced store productivity, but a new management team is poised to turn around results. Average store operating income fell from $133,000 in 2009 to $97,000 in 2011 as average yield on loans fell to 20% from 25%. ROE peaked in 2009 at 30%, but fell to 12% in 2011. This led to five straight earnings misses throughout 2011 and into 2012....277 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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