Stock picking is a very personal thing.  That’s why nearly every different portfolio manager favors different stocks.  Furthermore, people pick stocks based on not just on the merits of an individual stock, but based on what they feel will happen to their local and global economy in the future.  For example, if I thought the end of the world was coming, I’d sell all of my stock and keep my money under my mattress.  But if I thought that the US was poised for some of the best economic times and growth in decades, then I’d be picking fast growing companies that do most of their sales in the US.  If you have a particular view of the economy, then there are certain types of stocks you should buy to back those views.  Here are some of the views and stock picks go along with them.

If your view is for a recession, then buy these stocks…

If you believe that the US or the global economy is going into a recession, then you the best types of stocks you can buy are those of well-established non-cyclical stocks.  These consist of companies that provide consumer goods or services that people can’t live without.  For example, utility companies would make this list, as energy consumption will continue despite a recession.  However, oil companies may not make this list, because people actually buy less gas and travel less often during recessions.  Companies that make consumer staples such as laundry detergent and other household goods could be considered a good play for these times.  Also, there are some companies that seem to do well in downturns.  In the past, McDonalds has thrived during downturns.  So have many of the dollar store companies.  If your outlook is for a recession, then buying well-established companies, and companies that pay dividends, might be your best bet.  While you could just sell your stocks, we wouldn’t recommend it because there may not be a recession after all.  And even if there is, stocks often start to head up about the time that the government gets the official data that we are in a recession.  Often, the recession is already on the way out by the time it is reported.

If your outlook is for slow growth, then buy these stocks…

If you think the overall economy is going to grow very slowly over the next decade or so, then there are several classes of stocks that you may want to consider.  First, you could look for companies or industries that are growing much faster than the overall market.  For example, computer stocks in the 1980s, networking stocks in the 1990s and Internet stocks in the 2000s all outperformed the overall market because of strong growth.  Finding a company that has good prospects even during slow growth periods is a great thing to do if you believe the economy is going to grow very slowly.  Another type of stock that many investors favor during these times are dividend paying stocks.  That’s because during slow growth and recessions, many investors turn to dividend stocks to bolster their returns.

If you think the US economy is going to grow faster than overseas, then pick these stocks…

If you believe that the US economy, or the economy for whatever country you live in, is poised to grow more rapidly than other countries, then there are a few stock strategies that you can use to take advantage of this.  First, make sure that the economy you want to invest in doesn’t appear to be overvalued to begin with by checking the current P/E of the S&P 500 or some other benchmark.  If things are in line with history, then you can start looking for ways to take advantage of your outlook.  First, look for companies that do most of their sales in the faster growing country.  Then, look for companies with favorable trends and valuations that fit this criteria.  When an entire economy does well, most stocks tend to do well, so you may not need to be a good stock picker in this scenario.  You can invest in mutual funds that focus on this economy.  Typically, funds that focus on growth and value fare better than other funds at these times.

If you think fast growing foreign markets are a good bet, then choose these stocks…

Emerging markets grow faster than established economies almost every year.  However, that doesn’t mean that you should invest more than a small amount in these economies.  For example, during 2011, the Chinese economy grew at about 10%, compared to just a few percent for the US economy.  However, the Chinese stock market fell by about 30% compared to a nearly flat US stock market.  That’s because the growth in China was slowing and stock prices were already trading at historical highs going into the year.  Luckily, there are dozens of fast growing emerging markets to invest in if you feel like they are a good value.  Many of these markets are so “emerging” that they hardly have any shares listed on US exchanges, and the exchanges in their country are often not open to small foreign investors.  Do your homework and make sure you’re not betting on a country that has highly priced stocks.  When you’re comfortable that you’ve picked the right country or countries to invest, you may want to look into buying a mutual fund or ETF that covers this country.  That way, you get access to hard to find shares, as well as the diversification that you need when investing in risky markets.

If you’re not sure what is going to happen, then buy these stocks…

If you’re not sure what is going to happen to the economy, then you’re probably a very astute investor.  That’s because no one knows what is going to happen next in any economy.  Historically, the more people that predicted an economy was going to outperform, the more likely that same economy would stumble.  In other words, the higher consensus is among Wall Street and economists, the more likely that they are wrong.  For example, look back to the dot com bubble of the late 1990s.  While the nasdaq posted a historic rise, investors and Wall Street changed the rules of investing to match.  Excuses were made that we are in a “new phase of economic growth”.  Well, nearly everyone was wrong and nearly everyone suffered as a result.  If you aren’t sure of the economy, you should stick to the old fashioned way of investing, which is to diversify your investments across all types of stock classes.  Use mutual funds and ETFs to invest in high growth, dividend, foreign, emerging, technology, biotech, oil, commodity and maybe even some bonds for diversification.  A well diversified portfolio is usually the best option, and could be used for any of the scenarios above as well as this one.

The takeaway…

Don’t make big bets on any one sector or based on your beliefs of the economy.  However, if you have a strong opinion and want to adjust your portfolio slightly to match your outlook, these are some of the strategies that can help you do so.