Less-Volatile Stocks for a Volatile World
NEW YORK ( TheStreet) -- These are volatile times. In September Apple (AAPL) seemed unassailable and spiked to $705 per share. Then there was the maps fiasco, sentiment waned and suddenly it became a $520 stock. The fiscal cliff problem was solved, then it wasn't. Europe was on the brink of salvation, then implosion.
As we enter what I expect will be a recessionary environment in 2013, I am focusing on companies that offer nondiscretionary products and services, because their customers and cash flows tend to be more reliable.
One way to do this is with newly created investment motifs, which are similar to indices and are very cost-effective. You can read about this type of investing at Motif Investing .
One motif is called simply Utility Bills. It's different from most utility indices and ETFs because it encompasses more than just payments homeowners and renters make to gas and electricity utilities. It also includes services such as cable TV, telephone and trash pickup.
This motif gives you exposure to companies that benefit from people's desire to come home to a brightly lit and clean house, a hot bath, cable TV and maybe a cup of tea.
Many people consider these nondiscretionary services, so demand for them is likely to remain more consistent in a sluggish economy than demand for, say, luxury travel, dining out and new cars.
To see the stability of cashflows that can come from providing, say, Internet services, consider Comcast and its very popular on-demand services.
Let's say a customer is behind on his monthly payment to the Internet giant but is spending a snowy Saturday afternoon at home. When he tries to watch The Dark Knight Rises , he will be instructed to contact Xfinity (the Comcast brand for a variety of Internet services) to pay up.
He'll be able to use a credit card to get current on his bill and will be watching his movie in 15 minutes. Meanwhile, Comcast still has a customer and a way of getting future bills paid.
Popular technology companies have significant unknown variables. Maybe Apple is winning the tablet war, maybe it isn't. Maybe Oracle (ORCL) will capitalize on the momentum of cloud computing, and maybe it won't. Moreover, in tough times, upgrading an Apple iPhone is not as important as keeping the heat on, or keeping the trash from piling up.
But with utility-related equities, there are many, many more knowns: the number of customers under contract, average bills, length of contracts, regulated rates, seasonality. Under these circumstances, revenue, earnings and cash flow are much more predictable. Fewer surprises frequently translates into lower volatility.