This Downturn Maybe Not the Real Big One: My Top 5 Stock Picks for Making it Through 2015-2030

These are just some of the developments that have taken place over the last six months. Not even since the beginning of the sub-prime mess (in August 2007). In this environment, you’d be wise to just keep your money tucked safely away under your mattress. Right?

Wrong. You’d better jump at the opportunities now available to you. All kinds of stocks are currently on sale. They’re at or near their 52-week lows. If you’ve held back previously because you thought you couldn’t afford to get into stocks, you’d better take a good look now. Some stocks are up to 75% off their usual prices.

But, you may say, what if we haven’t seen the worst of it? What if the market hasn’t bottomed yet? What if the U.S. dollar collapses? Shouldn’t I wait before investing? For Pete’s sake, I don’t even know if the money in my own bank will be safe.

What’s Next For the Economy

The Almost Millionaire has asked me what I think my top five stock picks are for the next five years. As I’ve been sitting thinking about this, the question has ballooned for me into a general prognostication of the entire big picture over the near future. Now, I am no securities analyst or economics professor, but I’ve done a lot of reading from many sources over the last five year – books, online news reports, business programs, press releases, company reports, and independent analyses. Based on all of this, I can tell you what I think we’re in for and how you might want to think about protecting and even growing your wealth in the years ahead. First I’ll go over the big-picture, then I’ll offer some stock strategies for dealing with it.

So what is my outlook for the next five years? Along with Garth Turner and Robert Kiyosaki (keep the research separate from the man, please!), I think the US (and by some extension, Canadian) market is going to continue to froth and spit until 2012 or so. Common reports say the recession/ downturn/ slump/ credit-crunch is going to last well into 2009, with some analysts suggesting 2010 as a more likely number.

But by the time this bear market finally stabilizes, it looks as though we might have another big problem on our hands. At that point demographics start taking over and the numbers of seniors will steadily increase. Seniors will start pulling money out of the markets in order to fund their retirement. They’ll be spending that money on health care and drawing on social security en masse. There will be more seniors per capita than younger people. The demographic problem is going to be very similar in Canada. In fact, per capita, Canada has more boomers than even the U.S.

Starting in about 2011 or 2012, the problem might become quite visible, as there won’t be enough younger working people feeding their hard-earned dollars into the system and paying the CPP (Canada Pension Plan) or social security for the folks retiring.

Here’s some facts on the mess that Garth Turner* has pointed out (and he is not the only one pointing these out. So if you dislike Garth Turner, sit tight: because you will find this corroborated by many sources):

-The number of retired people will explode by 300%
-The cost of public pensions will rise, from about $22 billion a year to more than $60 billion. Health care costs could double. For every retired person there will be just one working taxpayer. Life expectancy is surging higher. Boomers will spend decades in retirement. There will be a huge transfer of wealth from workers to retirees, unless public pensions and universal health care are allowed to collapse.
-Today’s 20-year-olds will pay hundreds of thousands of dollars more in taxes than they will ever receive in government benefits.
-Today’s seniors will get $120,000 more than they contributed.
-Seventy percent of all the retirement savings accounts in Canada contain less than $50,000
-The vast majority of Canadians do not have a corporate pension now and will never get one.
-Most middle-aged people have saved about a tenth of what they will need to retire in comfort.
-Health-care certainly will not be free, but laced with user fees to keep the system functioning.

The situation is far, far more complicated and potentially dire than what I’ve been able to indicate here. There are also a number of other economic messes that don’t look like they will be resolved anytime soon, the main one, perhaps, being the fact that there are too many US dollars in circulation. The Fed prints money as a solution to its problems and has stopped publishing M3, which is the data on the total number of dollars in circulation. This seems the best way to hide the real value that the US dollar has.

In light of all this, there is good news. There might still be a good four or five more years in which we can accumulate and grow our wealth before a big downturn really starts to hit. Turner’s bullish until about 2011 or 2012. After that, we might see the start of a very widespread depression that could last well into 2030. Yeah, his prediction is extreme. But I find these prognostications very insightful and I think it’s wise to prepare for any scenario: inflationary, deflationary, or stagflationary. They could all lead to a depression. So here are some stocks I recommend for the next five years.

Pay attention to the markets at all times, though. Read the news. And watch the VIX (volatility index). If it starts to head up near 40, watch out and consider taking some of your money off the table and keeping it in cash.

My Top 5 No-Brainer Stock Picks:

1. Consumer Non-Cyclical. People won’t stop brushing their teeth and drinking soda pop. Make this a global company, though, so you can benefit from other markets. Suggestions: Coca-cola. Proctor and Gamble.

2. An Energy play. Sooner or later we’re gonna use up all that oil, and as we do, the prices will rise. Besides, the big oil companies are also the ones investing in new forms of energy resources. For Canada, a good one might be Husky Energy. They have no debt, they’re positioned well in South Asia, and overall look great. For a Canadian income trust, look at Arc Energy. Other suggestions: BP, PetroChina, Sinopec, StatOil.

3. A Health-care stock or health-care ETF. Given the choice, how many people would opt for an earlier death, or more pain, or more prolonged suffering? No matter what way you look at it, it’s hard to see the long-term risk in holding pure health-care plays. Almost all of us probably want better drugs, better solutions, better living. Yeah, I know that prevention is much more important than the care of disease, but face it – if it arrives on your doorstep, you’ll probably want the best that’s out there. I know there are some ethical problems with the drug companies. It’s not all rosy. But we can’t throw out the baby with the bathwater, as they say. Suggestions: right now Pfizer is undervalued. Johnson and Johnson can fit here, too. Abbott Laboratories.

4. A Financial. Even for US investors, I recommend putting your money in one of Canada’s Big five. I might go with RBC, the biggest. They have a market capitalization of over $61 billion (U.S) – compare that with Wachovia, which has a market cap of about $37 billion (U.S). Plus, RBC is well-positioned in the U.S., owning RBC Bank throughout the east coast and in the Carolinas. It’s very easy to move your money back and forth across the border using this bank. My second choice here would be TD, which has excellent management and also has strong holdings in the northeastern U.S. For US banks, look at Wells Fargo, US Bancorp.

5. Another consumer non-cyclical, a related financial, or an agriculture stock. If you pick a financial, go with one of the life-insurance giants. In Canada, pick Manulife or Power Financial. If you go with another consumer stock, pick one that also has some exposure to the health care sector: like Johnson and Johnson. Even in the slump we’ve seen so far in 2008, JNJ continued to increase its dividend. That’s very, very good. Also look at China Life, Archer Daniels Midland, Agrium or COW (Claymore Agriculture ETF).

Finally, wherever possible, I would enroll in the dividend reinvestment plans of your chosen companies. It’s even better, and more important for long-term savings, if you can pick companies that have fee-free plans. Johnson and Johnson does. Manulife has a DRIP that is also open to US investors.

Even though this is an outlook for five years, I recommend buying stocks you’re comfortable with keeping for the very long-term. Keep your life simple. While there are many good reasons for trying to time the market – the main one being potentially more gains, if you do it right – it means you really have to be on top of things, reading the news daily on your sectors and really having a feel for what the market’s going to do next. I already read the news daily and I wouldn’t have confidence in saying what the market is going to do in the immediate short-term. I’d rather stick to the facts. The facts are found in the demographics. In his 1999 book, Garth Turner said that the current generation of retirees is going to be the last one to retire this comfortably. For us – for anyone younger than, say, 45 or 50 right now – we’re going to have to do it all on our own. No pensions, no social security. We need to keep our eyes and ears open and make sound decisions based on what we know at the time. And it is time right now to become more financially aware.

*Garth Turner, 2020: New Rules for the New Age, Key Porter Books, © 1999.