The market has been kind to no one lately. Look no further than yesterday’s close for all the evidence most investors need to pack it up and hide their savings under the mattress for the next few years.

Unfortunately, most investors get it wrong. We all fight to pile into a hot stock, retreating once the share price plummets. Of course, that’s the exact opposite of what a savvy investor should be doing. Remember — it’s not about calling a bottom. It’s about buying low and selling high. It’s a simple concept that’s goofed seemingly every day when we let our emotions creep into our portfolios.

Right now, the market is low. Some of the beaten down stocks deserve to be in the basement. But like any bear market, there are some deals out there. So who’s bullish?

Minyanville.com CEO Todd Harrison is. Harrison told Yahoo! Finance that he believes a “monster move” is in store for stocks by spring.  Harrison isn’t a perma-bull, either. In fact, he’s been quite bearish for the better part of the past year. Now, he’s telling the press that the S&P could hit 1,000 very soon.

Harrison’s prediction is closely linked to financials. He told Yahoo! that financial stocks could spark a rally due despite the intense negativity in the sector. While we find this interesting, we wouldn’t follow Harrison into his Bank of America, Morgan Stanley and Wells Fargo plays just yet…

Berkshire Hathaway captain Warren Buffett has not been so publicly bullish…but the legendary stock picker hasn’t exactly stayed quiet on the investing front. Buffett has spent his time sniping shares of the industry leading bottom-dwellers like General Electric, Goldman Sachs, and Swiss Re.

You and I may not be able to purchase preferred shares through private deals or buy up corporate debt like Buffett is doing these days. But for individual investors with a small-cap focus, there are ways to play the recession and come out on top…

• First, you need to think cheap. No, we’re not talking about fundamentals (although it’s always good to take a look at price-to-sales, debt, and other important metrics before buying a stock). In this case, we mean cheap goods sold by discount retailers. When consumers are stretched thin, cheap stuff rules the roost. Don’t believe me? Just look at yesterday’s drop. As of 4:00 p.m., only one Dow component had posted a gain: Wal-Mart. For the small-capper, screen for retailers with market caps less than $1.5 billion and you should find some interesting plays related to this idea. And for this screen, avoid specialty retailers and stores that primarily sell big-ticket items.

• During tough times, sin wins… Sin stocks are the comfort food of troubled times. A consumer who recently lost his job probably isn’t going to go out and buy a new car. But by the same logic, he isn’t going to give up his beer and cigarettes, either. In fact, the best performing stocks during past recessions have been tobacco and alcoholic beverages.

• Find the necessities. We’ve already talked about the top two recession gainers from the chart above. But what about household products? Yes, families are cutting back. But we seriously doubt they’ll stop buying toilet paper and bleach just because they’re stretched thin. There are plenty of items every family can’t live without. Companies that make the goods should do just fine…

Best,
Greg Guenthner

February 18, 2009

Greg Guenthner

Greg Guenthner uses his experience as a former journalist to dig up the hard-to-find headlines that could lead to big gains for your micro-cap portfolio. Greg offers his readers the scoop on topics ranging from alternative energies to biotechnology, digging up the best penny stock opportunities before they’re discovered by the mainstream media. On top of contributing to Penny Sleuth, Greg also heads Penny Stock Fortunes and Bulletin Board Elite. Special Report: Imagine Getting Rich as Ignored Stocks Soar - You could turn $200 into $1.2 million!

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