Stocks to Buy in 2009

Many people believe that the U.S. economy will start to rebound in the second half of 2009; I am not one of those people. I firmly believe that this is be a multi-year recession and that investors need to adjust their portfolios accordingly. I think that best way to play the equities market in 2009 is to remain defensive and invest in companies whose business is recession proof or in stocks with dividends larger than 5%. The companies who best fit this investment strategy are Verizon Communication (NYSE: VZ), Kinder Morgan Energy Partners (NYQ: KMP), and Bristol-Myers Squibb (NYSE: BMY).

Verizon Communication (NYSE: VZ) provides communication services in the United States and internationally. They operate in two main segments, Wireline and Domestic Wireless. The Wireline segment provides voice, Internet access, broadband video, and long distance services to customers. The Domestic Wireless segment provides wireless voice and data products and equipment sales. This segment has about 68 million retail customers. Verizon Communication operates in the telecommunications sector which is fairly recession resistant. The company offers its shareholders a 5.8% dividend yield (as of 2/5/09) and is currently trading in the middle of its 52-week trading range. While this company will probably not be able to see continued growth until the housing market improves, their big dividend yield gives investors a small incentive to wait for the turnaround.

Kinder Morgan Energy Partners (NYQ: KMP) owns and manages energy transportation and storage assets in the North America. The big misconception about this company is that it profits from energy exploration. This is not the case. This company primarily operates as a “toll road” for any company that needs to transport natural gas. Kinder Morgan Energy owns the pipelines that the exploration companies use to transport natural gas, and they charge these companies a few to use the pipelines. The best aspect of this company is that it operates as a Master Limited Partnership. MLP’s are required to distribute a certain amount of their profits to shareholders in the form of a dividend. This is why Kinder Morgan Energy is able to pay its shareholders an 8.6% yield. This company is in the sweet spot and is primed to take advantage of the increase in natural gas exploration. The fact that the price of natural gas has plummeted has no effect on the company. Kinder Morgan profits from the amount of natural gas that passes through their pipelines and with the increased emphasis on alternative energy sources, companies are drilling more and more for natural gas.

Bristol-Myers Squibb (NYSE: BMY) engages in the discovery, development, licensing, manufacturing, marketing, and distribution of pharmaceuticals and other healthcare related products worldwide. Bristol-Myers’ key drugs are its cardiovascular drugs PLAVIX and COUMADIN, its oncology products TAXOL and SPRYCEL, and its disorder product ABILIFY. Healthcare and pharmaceutical stocks are typical recession plays because they are not affected by the economy as much as retail stocks. In addition, they engage in several collaborations with other drugs companies like Pfizer and Exelixis Pharmaceuticals, and they have several others drugs in phase III of clinical trials. Bristol-Myers has held up much better than other companies under the recent selling pressure and is on $2 off it’s 52-week high. In addition, BMY pays its shareholders a nice 5.4% yield.

I remain adamant that this is not the environment to be aggressive with your investments. Banks stocks and retail stocks look like they will struggle once again in 2009 and should not be owned unless to can tolerate the high risk and high volatility. It will be difficult to make money in 2009, but if you stay defensive and invest in companies with high dividend yields, it will give some protection against downward moves and provide you with some gains to offset the losses in the share price.