Two Types of Stocks for the Current Economic Environment

So, according to the Bill Gross' commentary in his August Investment Outlook, due to the expected reduced economy growth, and therefore reduced overall earnings growth, over the next few years, the best investments would be aggressive growth companies that are currently undervalued and large companies that can continue to raise dividends. Or at least that's the way I interpreted his commentary. Operating within the Mr. Gross' framework, I would argue that those are the two types of companies that investors would flock to because

• When overall earnings growth is depressed, you'll demand higher dividend payments. Therefore, you'll want to invest into companies whose current dividend payout ratio is relatively low, which will allow them to significantly increase the dividend payout if needed. You also want companies that have a history of dividend increases and who will therefore be willing to continue increasing the divident payout. Furthermore, since more investors will have increased demand for and appreciation for such companies, their stock will go up as well due to the increased demand for their dividend payments. So, it's a two-prong profit generating strategy from such stocks, as long as you pick the right ones, of course!
  
  
• You will also want to pay attention to the companies that can grow aggressively despite the overall economic slowdown. Such companies always exist, even in the worst of depressions. These companies would be at the lower spectrum of the market cap universe; they are highly innovative and dismissive of conventional wisdom; they're likely to be the frontrunners of their respective industries, but you also need to be careful with the industry and sector selections. For example, even though it's possible to have a high-flying retail operation (maybe Gamestop?) that will defy all logic and economic sense (is there such a thing? or should I have said "nonsense"?), you will probably have a higher chance of success in the biotech or data storage areas (if VMware was introduced to the market right now, it would still take off like crazy despite the gloomy market conditions and even though it wouldn't rise quite as much as it did, it would still be a great investment right now).

I think that Mr. Gross makes a good case for depressed earnings over the next few years, but it's important to keep in mind that market doesn't always react quite as you'd logically reason it would (I like to believe that my points above have some logic to them...).