Coming out of World War II, few Americans could have known about the great era of prosperity soon to arrive.#-ad_banner-#

From 1946 through 1973, our economy expanded by a 3.8% annual pace. Sure, there were a few recessions along the way, but the rapid rise of the middle class, which enjoyed a rising standard of living, helped set the stage for the world’s greatest economy. Roughly one-fourth of all global economic activity takes place on U.S. shores.

But as I noted last week, the U.S. is now in its sixth year of weak economic growth. Economists are growing increasingly concerned that we’ve entered into an extended period of anemic growth. Indeed, the sole purpose of the Federal Reserve’s massive stimulus programs was to revive the economy’s “animal spirits.” But the economy has yet to respond. The Fed is pushing on a string.

Investors may have a hard time seeing this notion as the stock market moves steadily higher. Profits are still rising, thanks to lean corporate expenses, but fully half of the companies in the S&P 500 are expected to boost sales by less than 5% next year.

Blame goes to a stagnant income picture for many Americans. The rising middle class that fueled the post-war surge is no longer rising, as median household income has been falling.

The New Playbook
Make no mistake: If the economy is poised for low growth in coming years, what has been working in the stock market will no longer work in the future. Instead, look for investors to rotate into companies that are built to handle low economic growth. These are companies that tend to post steady (if uninspiring) sales growth no matter what the economic climate.

A key test of such durability: companies that managed to boost sales in 2008 and 2009, even as the economy tanked. These companies tend to have a wide moat around their businesses and can control pricing for their products.

Of course, the best rain-or-shine business models sell goods or services that are always in need. Take electric utilities as an example. They simply go to regulators and apply for rate hikes to reflect their own rising costs. (That said, I will really focus on utilities when rising interest rates cause investors to ditch them in favor of government bonds. That will push their share prices down and their dividend yields up, which will be the perfect time to pounce.)

The entire business sector known as consumer durables also fits the bill. We all need toothpaste and paper towels, so companies like Procter & Gamble (NYSE: PG) and Kimberly-Clark (NYSE: KMB) will never go out of style. I’m partial to the basket approach, and the Consumer Staples Select Sector SPDR (NYSE: XLP) is a fine ETF, sporting a low 0.18% annual expense ratio. This is a true buy-and-hold fund for investors that are concerned about economic growth prospects and the potential impact on discretionary spending.

The economic climate also plays less of a role for companies that have high levels of cash flow and have shown a clear commitment to share buybacks. The logic is self-evident: Even companies growing just 3% to 4% can still get a bit of operating leverage, boosting profit growth into the 6% to 7% range. Toss in sizable share buyback programs, and per-share profits can grow at a double-digit pace.

Do-it-yourself retailer Home Depot (NYSE: HD) is a great example. The company has bought back 700 million shares since 2005, shrinking the share count by roughly one-third. Despite fairly anemic top-line growth, per share profits have risen at least 20% in each of the past three years.

And it’s still happening. Home Depot is expected to boost revenues 5% in its current fiscal year, to $78.7 billion, but EPS is expected to rise nearly 20% (to $3.70). The outlook for the next fiscal year: sales growth of 5% but EPS growth of 17%.

The M&A Angle
In the past few years, the mergers and acquisitions market has been fairly quiet. Many companies have concluded that it’s safer and easier to just apply their cash to buybacks and dividends rather than pursue dealmaking.

But if the economy remains stuck in the mud over the next few years, look for M&A activity to finally spike higher as companies conclude that they’ve done all they can to boost their own prospects internally. How to profit from M&A? My colleague Dave Goodboy has spotted an intriguing pair of ETFs that focus on deal-making.

As a stock picker, I like to focus on small companies with high growth rates. The 3-D printing companies such as Stratasys (Nasdaq: SSYS) and 3D Systems (NYSE: DDD) are great examples, though their current valuations are quite rich. In the weeks ahead, I’ll provide a fresh list of companies that appear ripe to be bought in 2014.

Risks to Consider: If the U.S. economy does manage to start growing at a faster pace, than defensive investments such as utilities and consumer durables stocks may lag behind the market again in 2014.

Action to Take –> As I noted in the first part of this series, the U.S. economy has grown 17% since bottoming out in early 2009, but the S&P 500 Index has risen 68%. Much of the disconnect stems from corporate margin gains and a very friendly set of Fed policies. But investors can’t count on those factors for much longer, and if the economy slogs through another slow growth year in 2014, investors will start to fixate on the tortoises instead of the hares.

P.S. Investing doesn’t have to be complicated. Invest in simple businesses that dominate their industries — in good times and bad — and return billions of dollars to their investors through dividends and buybacks. The stocks in our latest report, “The Top 10 Stocks For 2014,” have gained 129.5% on average over the past five years following this simple strategy. To learn more about our top picks for 2014 –including several names and ticker symbols — click here now.