Supply Chain Logistics

Though things may be pretty dismal in other parts of the economy, supply chain logistics (as an industry) appears to be doing OK. That’s because even during sever downturns, there are essential products that have to be moved and distributed such as: pharmaceuticals and surgical supplies to hospitals and drug stores; eggs, milk, bread, meat, fruits, vegetables, frozen foods, toilet paper, etc., to grocery stores; hardware and parts to manufacturing and retail outlets; and the list goes on and on.

Logistics companies make sure all of the required consumer goods go exactly where they are supposed to go. And perhaps most important of all, they have to find a way to get it all there at the lowest possible cost. During hard times, in particular, the ability to move stuff cheaply can be a major source of competitive advantage to those logistics businesses who keep their operations up-to-date.

Health Care

With an aging population and the largest health care spending in the world, the nation's medical sector could fare perhaps best of all. During economic downturns, sales of prescription drugs and medical devices tend to hold-up better than nonessential goods, noted David Wyss, chief economist of Standard and Poor's.

"Generally, you're looking for things that are necessities, not luxuries," Wyss said. "People get sick and need medical care regardless of the state of the economy."

However, recent earnings show that drug makers aren't totally immune from slumping sales that have plagued their peers in the retail and auto industries. Pfizer reported that U.S. sales of its best-selling product, the cholesterol drug Lipitor, continues to fall from its mid 2008 peak as financially struggling patients stop filling their prescriptions and/or switch to generic brands when available.

Health care companies least affected are those that sell inexpensive medical products directly to hospitals, bypassing cash-strapped consumers.

Becton, Dickinson & Co. and Baxter International Inc., for example, continue to report profit gains. Becton Dickinson specializes in syringes and surgical tools; Baxter sells drugs to treat blood and immune disorders.

"The products they offer aren't high-tech things," said Aaron Vaughn, an analyst with Edward Jones. "They are health care staples that people need."

Defense

With the government spending hundreds of billions of dollars to fight wars in Iraq and Afghanistan, most big defense-related companies have been able to withstand recessionary pressures.

Companies such as General Dynamics Corp., Northrop Grumman Corp., and Lockheed Martin Corp. have contracts that stretch decades into the future, as well as large cash reserves.

However, as the country grows more war weary, even partial withdrawal from war related actions will hurt ammunition manufacturers such as Alliant Techsystems Inc. and General Dynamics.

By contrast, companies such as Boeing and Goodrich Corp. are better positioned to weather defense cuts because much of their business involves the private aviation market.

Food & Consumer Staples

While health care providers and defense contractors are subject to policy changes in Washington, other sectors are more stable. Food companies such as Kraft Foods Inc. and Kellogg Co. tend to perform fairly consistently, even during tough times, which is why their stocks are holding up well, analysts say.

General Mills, maker of Cheerios and Pillsbury products, is one of the best-performing stocks in the S&P 500. Its strong brands have helped it outperform competitors for years.

As consumers begin eating at home more often, they are boosting sales at chains such as BJ's Wholesale Club Inc. that can deliver groceries at the lowest price, often at the expense of more high-end companies.

At the same time, chains such as Costco Wholesale Corp. and Kroger Co. have reported rising earnings as shoppers’ trade down to lower-budget store brands.

Tobacco & Alcohol

Cigarettes and beer don't seem as indispensable as food and medicine, but demand for tobacco and alcohol tends to remain strong in tough economic times.

Tobacco industry executives, pointing to steady sales, say that shows consumers remain loyal to tobacco products even as they cut back on other expenses.

"No business in the world is actually recession-proof, but I am convinced that our business is very recession-resilient," said Hermann Waldemer, chief financial officer of Philip Morris.

The beer industry has proved nearly as elastic. Its sales to retailers have risen about half a percent for the year, according to trade publication Beer Marketer's Insights. Though that's down from last year's 1.4 percent growth rate, analysts say the industry is still performing relatively well.

For investors - "Vices tend to be a good place to seek shelter because people pretty much support their vices - at least the cheaper ones," said S&P's Wynn.

Final Thoughts

The trick for material handling equipment and system providers going forward appears to be cultivating relationships within those industries that are positioned for growth even as the general economy continues to struggle to regain traction.