5 Tech Stocks to Buy in a Recession

During economic downturns, the vast majority of companies on the market are bound to see lowered demand, but as is usually the case, there are a number of exceptions to the rule.

One niche area worth paying attention to during periods of financial woe is low-cost entertainment and vice, or what some might call “sin stocks.”

Generally speaking, this realm of stocks includes industries such as tobacco, alcohol, gambling, media, etc. The basic idea is that during times of prosperity, consumers are purchasing big-ticket items like cars and big-screen televisions, but when times get rough, they will substitute these purchases for a nightly glass of wine, a pack of cigarettes, or a movie rental instead.

Below, we’ll take a brief look at a few technology-related stocks that fall into the categories of cheap entertainment and vice. If you happen to consider yourself a socially responsible investor, you may want to take a pass on this one.

Sloth and Gluttony: Netflix (NASDAQ: NFLX)

What better way to comfort yourself during difficult economic times than by ordering some greasy takeout and curling up on your couch for hours at a time at a cost of just $8.99 a month?

Netflix’s monthly on-demand streaming is arguably one of the most cost-effective forms of entertainment to ever exist. For about $100 a year, you get access to a massive library of movies and shows, so what’s not to like?

When folks are strapped for cash, the Netflix model thrives. One look at the company’s share price from 2008 to 2010 compared to the broader market, and it’s obvious Netflix has the ability to completely defy a bear market.

Other forms of low-cost entertainment companies include video game retailers such as GameStop Corp. (NYSE: GME) and digital media companies like King Digital Entertainment (NYSE: KING). Outerwall (NASDAQ: OUTR), owner of automated retail company Redbox, is also an option for investors interested in cheap-media stocks.

Envy and Pride: Facebook (NASDAQ: FB)

When consumers are broke, they tend to go out less, and what do people do these days when they’re stuck sitting around the house? Well, they browse the Internet, of course!

And where do people tend spend the most time on the web? Watching videos and checking Facebook.

In fact, the average American now spends an average of 50 minutes a day checking his or her Facebook feed — that’s more time than we spend taking care of and socializing with our pets.

And interestingly enough, the lower your socioeconomic status, the more likely you are to use Facebook religiously. According to a recent Pew Research study:

The survey data reveals a distinct pattern in social media use by socio-economic status. [Consumers] from less well-off households (those earning less than $50,000) are more likely to use Facebook the most.

The more eyes on screen, the more Facebook makes in ad revenue, plain and simple. You can count on the company thriving even when times get tough.

Lust: RCI Hospitality Holdings, Inc. (NASDAQ: RICK)

RCI Hospitality Holdings, also known as Rick’s Cabaret International, is an operator of strip clubs, nightclubs, and adult entertainment websites. It appears to be the only publicly traded adult entertainment company listed on a major exchange and was even named a top 200 company by Forbes in 2009.

While the majority of its business is not technology related, RCI’s Internet division owns and operates an adult entertainment subscription website for “swingers” along with adult-oriented auction sites. RCI also provides in-house IT and graphics capabilities and owns ED Publications, Inc. — a leading trade publishing group serving the multibillion-dollar adult nightclub and retail store industry.

As for how this relates to economic downturns, a positive correlation between lower socioeconomic status and increased pornography intake has been well documented (insert inappropriate pun about “hard times” here) in psychological literature.

This means an environment where consumers are strapped for cash would likely benefit RCI’s Internet-based adult entertainment segment. However, this could arguably also have a converse effect of the company’s nightclub business, so caution is advised.

Wrath: TASER International (NASDAQ: TASR) and Checkpoint Systems (NYSE: CKP)

More poverty means more crime, plain and simple. From petty theft to violent offenses, there’s a clear positive correlation between illegal activity and low socioeconomic status.

There are a number of companies you can buy if you’re betting on rising crime rates due to an economic downturn. A few popular choices include correctional facilities and private security contractors, but as for technology-centered firms, the options are limited.

Among these companies, though, are TASER International and Checkpoint Systems. The former provides non-lethal solutions for law enforcement, while the latter provides merchandise security and visibility for retailers.

Of these two, TASER seems like the much safer bet right now. The company has a healthy 15% profit margin and has been growing revenue regardless of the broader economic environment. Checkpoint Systems, on the other hand, has been treading water recently, posting multiple quarters of net loss and slipping revenues.

Greed: First Cash Financial Services (NASDAQ: FCFS)

“No credit or bad credit? No problem!”

That’s just one of the many greed-driven taglines for First Cash Financial, an online lender and retail-based pawnbroker.

We all know how these kinds of lenders work: People in need of some extra cash are granted a quick loan and in return must pay an obscene CAB credit service fee (24% to 30%). Known as payday loans, customers can get up to $1,000 wired to them overnight without leaving the comfort of their couch.

First Cash Financial also buys pawned items for pennies on the dollar and offers title loans up to $5,000 for folks just begging to have their cars repossessed. It’s the perfect business model for when people are struggling financially, albeit a shameful one.

Until next time,

Jason Stutman

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