5 Stocks to Beat the Recession

• Email
• Share
• Print

With the Dow still below the psychologically significant 12,000 mark, it would do investors well to consider the impact a prolonged recession might have 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 less than that of the S&P, 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 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-rated stocks in the database significantly outperform the lowest-rated ones.

When I ran the screen, it returned 61 stocks. Below, I've listed five that look like they could do well in any extended downturn.

Stock	CAPS Rating (out of 5)	3-Year Avg. Revenue Growth	3-Year Avg. EPS Growth	Beta	P/E Ratio
Corn Products International (NYSE: CPO)	****	15.3%	35.2%	0.7	12.0
FMC Technologies (NYSE: FTI)	*****	20.6%	24.7%	0.9	8.4
Kirby (NYSE: KEX)	****	17.3%	26.1%	0.7	16.1
Watson Wyatt Worldwide (NYSE: WW)	****	31.85%	30.3%	0.5	16.6
Pioneer Drilling (NYSE: PDC)	*****	21.7%	40.0%	0.8	17.7

Source: Motley Fool CAPS screener.

FMC Technologies
Meeting our energy needs through subsea hydrocarbon extraction is going to remain an important component of energy policy, despite the growth of alternative forms of fuel. Yet to do so in an environmentally safe manner will require the kind of technology that FMC Technologies provides to the industry. Its energy trees, for example, allow for subsurface separation of oil and water, letting customers like StatoilHydro (NYSE: STO) operate more efficiently. Such processes account for nearly half of FMC's revenue and are one of the reasons CAPS member ww2004 figures this company will continue to thrive:

This companies energy unit has unique equipment, called energy trees, used in deep water projects. By enabling producers to process oil and gas, and separate out water at the sea floor instead of at the surface, the equipment makes production more efficient and lowers producers' cost. With so much future oil and gas production moving to deep water, oil service companies like FTI should do well.

Kirby
Another energy play that's barging into the ranks is Kirby, an operator of inland oil tankers and towing vessels. While high fuel costs led to some weakness in shipping demand, the company was still able to report earnings that exceed the previous year's results -- the 18th consecutive quarter it has done so. That was one of the reasons CAP member UberGadfly picked Kirby to outperform the market this past spring:

- 1.) Good Momentum

- 2.) 16 consecutive quarters exceeding previous years' earnings

- 3.) Continued high demand and subsequent increases in margins

-          * I think gas prices are here to stay, if not continuing to increase in the short term then increasing for sure over the long haul. This keeps near-shore production at high priority, and Kirby is a leading delivery shipper for near-shore U.S. oil production.

Pioneer Drilling
It's always unsettling when a top executive suddenly resigns -- in the case of land drilling contractor Pioneer Drilling, it was the CFO -- and doubly so when it's done without explanation. When the former chairman of the board joins him, it's bound to raise questions. It doesn't seem related to Pioneer's recently submitted (delayed) quarterly report, as there was no need to restate results, but shares have fallen 20% in the aftermath regardless.

Yet the outlook for land drilling still looks bright. Halliburton (NYSE: HAL), for example, expects the strong rebound in the business that began earlier this year, to continue into the foreseeable future, with a number of companies increasing their capital spending. Halliburton is looking to increase revenue by 20% a year.

The CAPS community would seem to agree with that assessment, as more than 96% of the 528 members rating Pioneer expect it to outperform the market going forward.

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.