With the US going deeper into a recession and so much uncertainty out there, what are the best places to put your money?
Some areas of the economy will generally be less effected than others. One area are the utilitiy companies. These companies usually are local monopolies and are allowed to increase prices when their costs increase.
Electricity companies and gas companies are such examples. Even during a recession people will continue to use gas and electric. They may cut back to a certain extent but there are few competitors.
If a customer that has Nevada Power wants to lower his/her bill, he or she will have to use less electric. They can't just cancel Nevada Power and go to anotehr company that is cheaper because there is only one company.
When Nevada Power wants to increase the rates, they will hold a hearing and it will generally be approved.
Also something that may help these companies is that both McCain and Obama have expressed interest in nuclear energy. These existing utility companies will most likely be the obvious candidates to be the companies to take on this task.
On the downside for these companies is the interest in alternative energy sources such as wind and solar power. These alternative energy sources would most likely hurt utility companies. However, a huge increase in alternative energy is unlikely to happen anytime soon due to the poor financials in the US. Alternative energy such as solar takes a huge investment with payoff periods that take upwards to twenty years. The government will most likely not be able to afford the tax credits to support a serious alternative energy program.
Some other sectors that are most likely to do well are oil companies. Oil usage has been starting to decrease in the US recently as Americans change their driving habits and as unemployment increases. However, just like utilities, there are few substitutes out there for oil. The ones that exist such as ethanol are only practical for a small number of vehicles. The process of making ethanol in the US is inefficient and can't be sustained for long.
The other alternative is hybrid cars or electic vehicles. Most people now are using gas based vehicles so to switch to hybrid or electric cars would require huge investments. Many people still aren't ready to purchase such cars unless they receive tax rebates. The goverment is strapped for cash and cannot afford such programs right now.
No major oil discoveries have taken place in the last thirty years so there will be upward pressure on oil prices again.
Another sector that is recession resistant is tobacco. Tobacco is a discretionary product that acts like a staple product as a result of it's additive nature. People will continue to buy food and they are likely to buy tobacco products if they smoke.
Tobacco companies in the US are having problems getting new customers but international tobacco sales are growing. Many of these companies have high dividend yields so you will continue to see a reward even if the stocks are flat or down.
All of these sectors offer nice dividend yields and safe haven from the real estate mess and from a slowing US economy.
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