With the Dow still below the psychologically significant 12,000 mark, investors would do well to consider the impact of a prolonged recession on their portfolios. Move to an all-cash position might be tempting, but before you make such a hasty move, take the time to look at stocks that can hold up through some tough times.
I used the stock screener at our investor-intelligence database, Motley Fool CAPS, to look for companies that have proved to be less volatile than the market but have reported strong revenue and earnings growth over the past few years. With a beta less than that of the S&P, these companies ought to react less violently to any market swoon than other stocks might.
By adding in a measure of cheapness -- these stocks also carry a price-to-earnings ratio that's less than average -- we build in an additional margin of safety. However, with CAPS investors rating them at three to five stars, we're getting companies that are expected to outperform. Our data suggests that the highest five-star rated stocks in the database significantly outperform the lowest-rated ones.
When I ran the screen, it returned 69 stocks. Below, I've listed five that look as though they could do well in any extended downturn.
|
Stock
|
CAPS Rating
|
3-Year Average Revenue Growth
|
3-Year Average EPS Growth
|
Beta
|
P/E Ratio
|
|
Ambassadors Group (Nasdaq: EPAX )
|
*****
|
22.1%
|
16.2%
|
0.3
|
12.2
|
|
DaVita (NYSE: DVA )
|
****
|
25.4%
|
16.3%
|
0.8
|
16.8
|
|
Telefonica (NYSE: TEF )
|
*****
|
27.7%
|
52.5%
|
0.8
|
8.7
|
|
Northgate Minerals (AMEX: NXG )
|
****
|
20.6%
|
24.7%
|
0.9
|
8.4
|
|
T-3 Energy Services (Nasdaq: TTES )
|
*****
|
27.9%
|
69.7%
|
0.9
|
17.2
|
Source: Motley Fool CAPS Screener.
Northgate Minerals
As if the possibility of having to abandon its Kemess mine weren't enough, Northgate Minerals also faces the prospect of continuing to see its cash tied up in auction-rate securities. Shares are in a tailspin, having fallen significantly from their highs, but the auction-rate market is starting to thaw, and Northgate's Young-Davidson mine holds promise. With other gold miners such as Kinross Gold (NYSE: KGC ) producing similar cash costs per ounce of gold, Northgate might be able to mine this trend further still.
CAPS All-Star bsharvy believes that if future estimates of growth opportunities are anywhere close to accurate, then Northgate's shares should flourish from these levels: "Northgate is undervalued relative to other gold miners because of 1) uncertainty in the next few years, as … its major mine depletes and new acquisitions start up (in theory), and 2) a lot of exposure to the auction-rate securities debacle. ... Nonetheless, the extremely low valuations suggest all those problems have been priced into the stock -- to a degree that is an overreaction, if the growth estimates are anywhere in the ballpark."
Ambassadors Group
Letting kids be the bearers of goodwill to the world is the idea behind Ambassadors Group. The company arranges for students in grade school through high school to travel abroad under the auspices of "People to People," a program that President Eisenhower started and the State Department originally ran. Today, tens of thousands of students trek around the globe and get an educational experience mostly unavailable through other means.
Earlier this year, CAPS member FleaBagger admitted that even though he had only a basic understanding of what the Motley Fool Hidden Gems Pay Dirt recommendation did, the concept sounded intriguing:
I can't help it. The numbers are so awesome. And they're from my home state, even though they're from … eastern Washington. It's just such a neat-o idea, too. (They take students and businessmen on educational trips to other countries. … I don't know how they differentiate themselves, but apparently they do.)
DaVita
CAPS member fatcanibal could have been describing me, but the demographics for kidney dialysis providers such as DaVita and Dialysis Corp. of America (Nasdaq: DCAI ) unfortunately does continue to grow -- a suggestion that there will be a persistently growing population to serve:
Follow the population demographics. Older, Fatter, high blood pressure. The population [DaVita] serves will keep growing.
Take a recess
Market downdrafts can wreak havoc on your portfolio, but 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 it pays to start your research on these stocks on Motley Fool CAPS. Use the screener, read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think can keep the dogs of recession at bay.
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