KEEP EYE OUT FOR FIRMS WITH 'STABLE GROWTH' COMPANIES (FINANCIAL FOCUS)

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

We've enjoyed a booming economy for some time now, but few people are suggesting that we'll never again see a recession. In fact, all historical evidence points to the persistent strength of business cycles periods of economic expansion followed by periods of contraction. And these business cycles have a definite impact on you as an investor. Fortunately, there are moves you can make to strengthen your stock portfolio, even in a negative business cycle.

To begin with, you need to have a good understanding of which types of stocks are "cyclical" and which are "non-cyclical." The performance of cyclical stocks is typically tied to the overall economy, especially interest rates. These stocks tend to rise quickly when the economy turns up and interest rates are favorable, but they may fall just as quickly when the economy falters and interest rates rise. Cyclical stocks include construction, automobiles, chemicals, heavy equipment and paper.

Non-cyclical stocks are not as directly affected by economic changes. These companies produce products people consistently desire or need. Not all non-cyclicals do well in every economic environment, but some of them are able to deliver steady profit increases year after year. These "stable-growth" companies produce consumer staples such as beverages, food and pharmaceuticals.

Once these stocks start showing dependable earnings growth, their long-term performance has often proven strong and consistent. That's why investors are so often willing to pay a "premium" for them, in the form of high price-to-earnings ratios, or multiples.

When you invest in a stable-growth company, you receive several potential advantages. First, these stocks, as a group, have tended to outperform the market over long time periods.

Second, they do especially well, relative to other stocks, during down times in the business cycle. No matter what the economy is doing, people still need to eat, drink and take their cold medicine.

Third, because they are usually worth keeping, you may not want to trade them, which means you'll generate fewer capital gains. That can be an important tax advantage, especially if you own these stocks outside a tax-deferred retirement plan, such as a 401(k).

It's clear that stable-growth stocks are particularly good candidates for long-term investors. Of course, if you are going to own stocks, you really need to take a long-term perspective on all your holdings, because stock prices bob up and down a great deal in the short term. You'll also want to make sure that your stable-growth stocks are part of a well-diversified portfolio; diversification is another key to reducing investment risk.

To learn more about which stable-growth stocks may be suitable for your needs and goals, you might want to consult with a financial professional. Although there are no guarantees in the investment world, the words "stable" and "growth" are nice to have on your side.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.