In an economic downturn, businesses and consumers rush to conserve their resources and cut spending as quickly as possible. There's no telling how long a downturn may last, so taking a conservative stance on making purchases can easily make sense.
But there are some things a person simply can't do without.
The health care industry, for example, has typically been characterized as a defensive sector. But not all health care stocks are created equal.
We saw how this has played out in the latest recession. Hospitals have cut back on buying expensive medical equipment and facilities, or are keeping existing equipment longer. From the patient side, there has been a big reduction in expensive knee and hip replacement procedures, for instance, as those with borderline needs for treatment would rather stay at work and earn a steady paycheck than take time off for an expensive elective surgery.
On the flip side, every industry requires basic necessities that cannot be skimped on, except in the direst of economic circumstances. In health care, basic, low-cost supplies consist of needles, syringes, blood-collection products and devices that help store medical specimens. These are EXACTLY the things people can't do without, and it's EXACTLY these kinds of products that make great defensive investments. After all, people still need blood work and vaccinations, for example, regardless of the state of the economy.
Companies that sell these products have a high degree of sales and profit stability, and there's one stock in particular that I believe provides investors with the industry's safest downside protection and the best upside potential.
Becton Dickinson (NYSE: BDX) sells all of the above mentioned medical products worldwide. Its three main divisions sell medical, diagnostic and bioscience supplies to hospitals and related health care providers. Other primary customers include clinics, physician's offices, reference laboratories and research labs.
The products Becton Dickinson sells are definitely mundane, but management has a stellar track record of growing sales and boosting profits along the way. During the past decade, it has leveraged average annual sales growth of nearly 8% into impressive annual profit gains above 14%.