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Anti-cyclical corporations |
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The economy alternates between periods, or cycles, of growth and contraction (aka recession). When the economy enters a recession. economic activity slows. Most corporations experience a drop in sales and profits. Their stock prices drop as well. However, certain types of corporations actually do better when an economy does poorly. These include dollar stores, pawn shops, payday lenders and collection agencies.
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Suitable for
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Investors who watch economic cycles and want to not just withstand an upcoming recession, but actually benefit from it.
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Examples
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Cash America International (CSH), Dollar Tree (DLTR), Family Dollar Stores (FDO), Portfolio Recovery Associates (PRAA).
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In the news
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Ill. AG fighting debt-collection warrants - November 22, 2011
High Bank Fees Give Wal-Mart a Money Aisle - November 7, 2011
Not Unbanked: Untapped. Underserved Spend $45B On Financial Services - November 2, 2011
Weak Economy Is A Boon For This Pawn Services Company - November 1, 2011
Short-Term Lenders Seize The Day - October 19, 2011
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Connections
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These corporations are the opposite of cyclical corporations.
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Explorations
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Research how pawn shops make money when a person pawns his or her property. Also research how a payday loan is made and paid back. Next, visit the summary of the FDIC National Survey of Unbanked and Underbanked to learn who these people are. Finally, using the research, debate whether investing in anti-cyclicals is in any way unethical or immoral (and whether it is the job of investors to make ethical or moral judgements).
Overlay the chart of the Dow Jones 30 or S&P 500 with one or more of these anti-cyclicals. See if they did indeed rise when the overall markets were falling during the last few recessions.
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A final word
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As of 2009, 7.7% of U.S. households (covering 17 million adults) were unbanked. The Federal Deposit Insurance Corporation (FDIC) is concerned that the unbanked pay more for financial services than those who have bank accounts. It also fears that the unbanked don't have access to credit and savings programs which would improve their financial situations.
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