With the Dow below the psychologically significant 12,000 mark, and now approaching 11,000 from the wrong direction, it would serve investors well to consider the potential impact of a prolonged recession on their portfolios. It might be tempting to move to an all-cash position, but before you make such a hasty move, take the time to look at stocks that have the ability to hold up in tough times.
I used the stock screener at our investor-intelligence database, Motley Fool CAPS, to look for companies that have proven to be less volatile than the market, but which have been reporting strong revenue and earnings growth over the past few years. With a beta that's around half that of the S&P 500 (or even less), these companies ought to react less violently to any market swoon.
By adding in a measure of cheapness -- these stocks also carry a P/E ratio that's less than the market average -- we build in an additional margin of safety. However, with CAPS investors rating them at four or five stars, we're getting companies that are expected to outperform.
When I ran the screen, it returned 38 stocks. Below, I've listed five that look like they could do well in any extended downturn.
|
Stock |
CAPS Rating (out of 5) |
3-Yr Avg. Rev Growth |
3-Yr Avg. EPS Growth |
Beta |
PE Ratio |
|---|---|---|---|---|---|
|
Atwood Oceanics |
***** |
33.8% |
81.9% |
0.4 |
17.1 |
|
ENSCO International |
***** |
32.6% |
67.8% |
0.5 |
9.4 |
|
Knight Capital Group |
**** |
15.3% |
18.2% |
0.5 |
11.5 |
|
Nabors Industries |
**** |
17.4% |
23.4% |
0.2 |
13.1 |
|
Tele Norte Leste Participacoes |
***** |
17.5% |
61.3% |
0.0 |
6.4 |
Source: Motley Fool CAPS Screener.
Rigging up opportunity
Oil driller ENSCO has seen its shares fall, along with much of the rest of the sector, as oil prices have eased. Yet with demand still pent up for oil, the need for its rigs remains high. Improving rates for its operations are helping the company with its current needs, while its long-term outlook is strengthened by rising orders for semisubmersibles.
Top-rated CAPS All-Star member SmValueBoy recognizes the historical strength of the driller, and sees the recent price action as an opportunity to buy a top-notch company at a reasonable price:
ENSCO International is an offshore drilling contractor with global operations. The company has posted consistent double digit earnings growth, and currently trades at half the industry multiple. The stock has grown slowly (for an energy stock) but consistently throughout 2008, and the recent pullback makes this a great buying opportunity.
Another driller also getting the benefit of future demand is Nabors Industries, which saw its margins solidify in the quarter, even though its Canadian division did quite poorly. While ENSCO hits the high seas with its rigs, Nabors, Patterson-UTI Energy
The shale business remains an opportunity to exploit, and CAPS member ajm101 figured out earlier this year that Nabors was one to do it:
North American land drillers like Nabors are generally priced around 10 times earnings. I believe this is because of the conventional wisdom that the U.S. was tapped out and it was a declining business. However, the unexpected success of companies exploiting shales is spurring a lot of difficult horizontal drilling. This should lead to better earnings and multiple expansion.
A credit to growth
With the worst credit crisis in recent memory seemingly only getting worse, the tumbling equity markets wounded electronic trading firm Knight Capital's recent second-quarter earnings. Equity revenue rose, but only enough to offset steep declines in Knight's asset management arm. As a result, the company missed analyst expectations.
cashcow32000 believes that Knight's institutional support and historical ability to grow make the financial services firm a long-term outperform: "With institutional ownership of 89%, taking the market orders for Market houses like Fidelity, This baby is going to do well while other financials flounder."
Take a recess
Though market downdrafts can wreak havoc on your portfolio, there's no reason to hide your money in the mattress. These five recession-fighters look to have the goods to keep your portfolio on the upswing -- but have we heard your thoughts yet? Head over to Motley Fool CAPS now, and weigh in with your thoughts on these or any other stocks you think can keep the dogs of recession at bay.
