If the market crashes of the last few days indicate that the U.S. economy is slipping into another recession, are there any safe havens among tech stocks?Let’s get this out of the way first: past results don’t predict future performance.
OK. Now, using the official definition of the recession as two consecutive quarters of negative growth, the recession began in December 2007 and ended in June 2009 (although with unemployment still above 9% it still looks and feels a lot like the recovery never really happened).
Over that period of time, the S&P was down about 35%. Most large-cap tech stocks dropped during that time as well — Apple was down about 15%, Microsoft 30%, and Google close to 40%.
But there were three big exceptions.
IBM, Oracle, and Amazon. All were flat or slightly up over that period of time.
The first two companies have a lot in common — both sell complicated and expensive packages of software and services to large enterprises. More important, both have long-term maintenance agreements with these big customers that result in a lot of recurring revenue, even if their customers cut overall IT spending and stop buying new products.
That could be a good lesson for the current uncertain market — if you want to be in tech, look at vendors who sell long-term contracts to big companies.
But Amazon is an outlier. It’s a consumer e-commerce company that should track more with the broad economy — when people are feeling poor, they buy less stuff. And in fact, it dropped much more precipitously than those two stocks — and lower than the S&P — during the first half of the recession, but recovered more quickly from the trough.
Interestingly, if you extend those stocks’ performance to the present day, all three are still performing better than most of their peers — and Amazon is up more than any of them, including even Apple.
Here’s the chart:
Photo: Google Finance