The recession is, by the standard measurement, over. The National Bureau of Economic Research’s Business Cycle Dating Committee said the downturn ended in June 2009. Most polls of individuals and company executives say otherwise. And on some parts of Main Street, the recession is still deepening.
24/7 Wall St. took a look at ten large companies whose success will prove that the recession has ended for most Americas – consumers and businesses alike. None of them are rapidly growing. Most are relatively mature. This makes them a good litmus tests for showing an improvement in economic growth because rapidly expanding companies such as Apple can give off false signals.
Many of the companies on this list are not market leaders. Their larger peers – those with their bigger R&D budgets, larger marketing budgets, or better balance sheets – may precede them in the recovery. A few of the firms have rather ordinary prospects.
So, these are the ten companies whose results and fortunes will signal the real end to the recession because they are neither at peak of their successes nor in a position to take market share and sales from rivals.
The world’s largest software company has languished for years as the growth of its core Windows operating system and business applications business have slowed. The launch of Windows 7 has helped boost the firm’s sales, but that has begun to wear off as the product has gained broad distribution. Microsoft has several businesses that will not do well until the economy recovers. These include its Xbox and Zune hardware products, its MSN online web portal, which relies on Internet advertising, and Microsoft’s server business, which will need a broad rebound to help improve sales.
2. Las Vegas Sands.
The gaming businesses was badly damaged by the recession, and Las Vegas is still little more than a ghost town. A few of the large casino companies such as Wynn have had some success tapping the rapidly growing markets in Asia by locating some operations in Macau. Consumer discretionary spending is critical to success in the gambling business, and consumers have very little to spend now. That will change, eventually, as the economy recovers.
The No. 3 US car company has the worst balance sheet, the lowest R&D budget, and oldest model line of any domestic car firms. It also faces tough competition from a raft of Asian automakers including Toyota, Honda, Nissan, and most recently Hyundai. Chrysler is still losing money while its larger US rivals have become profitable again. Chrysler’s US market share is only 8%. It will take a sharp recovery in vehicle sales for it to benefit from a resurrection of the auto industry.
4. DISH Network.
The satellite TV company competes with cable and telecom firms for the home entertainment dollar. The competition has grown to include digital offerings from corporations as diverse as Amazon and Walmart. DISH lost 19,000 subscribers in the last quarter after years of growth. Consumers have been reluctant to spend on services, even relatively inexpensive entertainment. DISH’s prospects cannot improve without a recovery in consumer spending.
Network television has been hurt by both a drop in advertising spending, which was hurt by the economy, and by new methods of delivering entertainment – particularly by the Internet. CBS’s revenue fell in 2008 and 2009. Its stock traded for $34 in 2007 and is now down to $16. CBS’s progress is a proxy for old media. This includes many of the network TV, radio, and print companies. None of these will ever post the results that they did when they dominated the media industry, and it will take a sharp recovery for CBS to post strong revenue gains.
Target has the distinction of being the No.2 retailer behind Walmart, which has annual revenue three times the runner-up. Target is operating in the highly competitive department store/big box retail industry that includes Sears, K-Mart, Macy’s Nordstrom, and many niche operations. The key to success in the sector is holiday sales, one of the best benchmarks of consumer confidence. Target needs to post strong October through December sales next year or the year after, to prove that shoppers have returned to malls, shopping centers, and city streets.
7. Walt Disney.
Disney has three businesses which are excellent barometers of economic activity: theme parks, TV programming, and movie production. Disney’s revenue has floundered in the last three years, but cost management has helped it to keep relatively good margins. Visits to movie theaters and theme parks involve hundreds of millions of consumer transactions a year. If that activity picks up significantly, the economy has turned sharply for the better.
As the world’s largest conglomerate, GE’s prospects are a nearly perfect indicator of GDP. The company has a large presence in financial services, medical products, the manufacture of jet engines, energy generation, and appliances. GE’s shares trade at half of what they did three years ago. The market will not help the stock move back up unless it sees a recovery in a number of the businesses in GE’s portfolio.
9. Procter & Gamble.
P&G has an unprecedented number of major consumer product brands, including Gillette, Ivory, Safe Guard, Old Spice, Head & Shoulders, Pampers, and Tide. P&G sells almost $80 billion of these brands worldwide. Consumer spending on modest home care, health care, and beauty products will have to rebound for P&G to have improved sales and a rebound to its share price of three years ago.
10. Bank of America.
The financial firm is an ideal proxy for the financial services industry. It is one of the world’s largest consumer banks. It owns wealth management and brokerage firm Merrill Lynch. BofA is one of the largest mortgage companies in the US. The bank also has a large division that caters to businesses – from those with modest sales to some of the largest corporations in the world. The financial company also has the most visited bank website in the country with nearly 25 million visitors a month. It will require a very broad economic recoveryfor it to be as successful as it was before the recession.
-Douglas A. McIntyre