The CAPS Screen: Defend Your Portfolio With These 5 Stocks

Standard and Poor's research shows that consumer staples, utilities, health care, and financials outperform the market 80%-90% of the time during recessions. As my Foolish colleagues Tim Hanson and Brian Richards point out, this outperformance is due to their reliability and healthy dividend policies.

Among large caps, this strategy held up extremely well during the last recession: Most of the top performers -- a group including Johnson & Johnson (NYSE: JNJ  ) and Procter & Gamble (NYSE: PG  ) -- were defensive dividend payers.

With that in mind, I used our new CAPS screening tool to discover which defensive stocks our 110,000 member CAPS investment community loves most.

These stocks have:

  • Market capitalizations greater than $10 billion
  • Dividend payments
  • Debt-to-equity ratios below 25%
  • Four- or five-star ratings from our CAPS community

Remember, in the first year for which we have data, CAPS' four-star companies outperformed the market with an average gain of 19%. Five-star stocks did even better.

Company

Share Price

Sector

Market Cap (in billions)

Dividend Yield

Automatic Data Processing (NYSE: ADP  )

$42.4

Services

$22.0

2.8%

Coca-Cola (NYSE: KO  )

$50.34

Consumer Goods

$116.8

2.9%

Merck (NYSE: MRK  )

$36.96

Health Care

$79.2

4.1%

Walgreen (NYSE: WAG  )

$34.19

Retail

$33.9

1.3%

Visa (NYSE: V  )

$73.7

Services

$79.8

0.6%

Data from Motley Fool CAPS and Yahoo! Finance as of July 17.

Of course, screens are merely a first step in the stock-selection process. As Miguel de Cervantes -- whose overly idealistic Don Quixote flails impulsively after unachievable dreams -- reminds us, "Diligence is the mother of good fortune." Come and join us on Motley Fool CAPS to dig into these companies further. Let our 110,000-strong (and counting) CAPS community help you polish your portfolio.

Ilan Moscovitz doesn't own shares in any of the companies mentioned in this article. Johnson & Johnson is an Income Investor selection. Coke is an Inside Value pick. The Motley Fool has a disclosure policy.


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