Let’s get right to it.  The time for tinkering with your portfolio is over.  And the time for a major makeover is upon us.

Many companies that do well in times of strong economic growth do poorly when a recession sets in.  And the other side of the coin is that many companies that do poorly in times of economic growth do better when times get tough.

I don’t care that the optimists can point to healthy balance sheets … or that profits (outside of financials and housing) are still averaging in the double digits … or that the manufacturing sector is still expanding … or that global growth remains strong.

That’s like pointing to hot temperatures in August and arguing that winter can’t be coming.

Sorry, but just as the temperature predictably begins to fall in September, there has been an unmistakable trend toward smaller profits, a flattening manufacturing sector, and lumpy global growth.

You could employ the classic anti-recessionary strategy and start favoring companies that sell consumer staples and boast a big global footprint.

After all, people can be counted on to continue buying soap and soup.  And why not invest in these companies that also sell to countries far away from the mess we’re in here?

Makes sense, but one of our IDE readers is skeptical:

I get what you’re saying [in last Tuesday’s IDE] right about the sub-middle class being the market to go for if you are planning on surviving the see-saw of a very unstable economy.  Here is the problem I see.  Tradition markets are one of the biggest factors in our sub-middle class.  They buy what they are use to … the same old washing powder and the same old stuff, [regardless] of price or quality. How do you get this “same old-same old” generation out of there parents’ tracks?

– Natasha

Natasha, you make a great point.  Marketing to consumers in emerging countries is tough.  Companies not only need the right product, they also need a great deal of knowledge of what local consumers like and how to market to them. 

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Here’s another quote that touches on the same issue:

Sales in Brazil grew only modestly in the first nine months in the face of increased competition from local manufacturers in spreads, tomato products and skin care.

This comes from the third-quarter report of Unilever (UL).  It has some of the best-known global brands in foods and snacks.  For “spreads,” it has Hellmann’s mayonnaise.  For “tomato products,” it has Calvé Ketchup.  And for “skin care,” it has Pond’s and LUX (among other products). 

Unilever also boasts a huge global footprint.  It has been in several of the emerging markets it sells to for decades (and some for more than a century).  It makes products that people need regardless of what the economy is doing – stuff like basic foods, hygiene and health-care products.  It offers a three-percent dividend.  And its share price is super-cheap.

What’s not to like?  It has the classic profile of a company you’d want to invest in with a recession on the horizon.

But peel back another layer and we can see that its sales growth is underwhelming in the U.S. and Europe and only just a little better in South America.  Its sales in Asia and Africa are pretty good, but not good enough to make up for lackluster growth in the rest of the world.  What’s more, they’re battling rising costs of raw materials.

Unilever isn’t atypical.  Many other global consumer companies also have to fight tooth-and-nail for market share. 

I can’t help but think that these companies have to work way too hard just to jack up growth to pedestrian speeds.

And it’s not as if they can pull a rabbit out of their hat like Apple.  They’re not going to come out with a killer product like iPod that will take the world by storm.  I don’t care how tasty their ketchup is, it’s not going to put the company on the fast track.

So forgive me, but I just can’t work up the same enthusiasm that Morgan Stanley has for PepsiCo (PEP).  Most of its profits come from snack foods.

They’re more expensive than Unilever with lower anticipated growth.  PepsiCo is reporting its fourth quarter earnings in two days.  I have no doubt they will be professing almost uncontrollable excitement for the products in their pipeline.  That’s not going to sell me on their stock.

Instead, I like sectors such as precious metals, alternative energy, and agriculture better.  They’re still going strong.  And the right companies in these sectors have a great chance of outperforming the market.

Next week, I’ll talk in more detail about a couple of these sectors.  And you’ll see what I mean.

Good Investing,

Andrew Gordon

P.S.  To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com.

[Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon's INCOME service that selects the best dividend-paying stocks available.]

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