Even though the Dow remains above the 12,000 mark, investors should still consider how a renewed recession might affect their portfolios. Before you panic and put your entire portfolio into cash, consider looking into stocks that have the ability to hold up in tough times.
I used the Motley Fool CAPS supercomputer to seek 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 1, these companies ought to react less violently to any market swoon.
By seeking cheap stocks with lower-than-average P/E ratios, we build in a margin of safety. And with the CAPS community according them high ratings, these stocks could also turn in terrific performance.
The following handful of stocks look like they could do well in any extended downturn.
|
Stock
|
CAPS Rating (out of 5)
|
Beta
|
3-Yr Avg. Rev. Growth
|
3-Yr. Avg. EPS Growth
|
PE Ratio
|
| EZCORP (Nasdaq: EZPW ) |
****
|
0.8
|
21%
|
23%
|
14.9
|
| Neutral Tandem (Nasdaq: TNDM ) |
****
|
0.8
|
28%
|
36%
|
17.5
|
| Richmont Mines (NYSE: RIC ) |
****
|
0.8
|
32%
|
18%
|
15.4
|
Source: Motley Fool CAPS Screener.
Do you hear that?
If the TV show Pawn Stars is any indication, being a pawn broker is a lucrative business -- not to mention a heckuva lot of fun. Given their recent performance, EZCORP and First Cash Financial (NYSE: FCFS ) would likely agree. The gold rush on commodities that boosted prices for precious metals was a boon to pawn shop operators, and with the economy still sucking wind, even the payday lending side of their operations could see an uptick in traffic.
Despite the federal crackdown on payday loans, even a lender like Advance America (NYSE: AEA ) has watched its stock rise 34% year over year. Companies less exposed to the vagaries of regulators -- short-term and payday loans comprise just 11% of First Cash's revenue, and 16% at EZCORP -- have turned in even better stock performance. First Cash is up 80% year over year, while EZCORP is up 73%.
EZCORP has been one of my top picks on CAPS for years, and themuffinking believes that it will only continue getting better:
There are a couple factors that move [EZCORP]. A big one is gold-higher gold prices mean EZCorp makes a higher profit in its pawn shops. Another is the rate of under-employment-people who feel they're not making enough money, go to EZCorp for payday loans. So the more apocalyptic the outlook-buy gold! the dollar is collapsing! nothing is safe!-the higher [EZCORP] will go. And 110 new stores in 2011 doesn't hurt.
Share your thoughts on its future on the EZCORP CAPS page or in the comments section below.
Price is what you pay
Network connection services provider Neutral Tandem's profits have dropped 13% year over year, but thanks to a recent acquisition, it's boosted revenue 48% in the same period. Even with sharp competition from Level 3 Communications (Nasdaq: LVLT ) and others, the wireless-carrier switchboard still reported earnings in line with expectations, and sales exceeding them.
Neutral Tandem provides services to wireless, wireline, cable, and broadband companies. Its billed voice minutes increased 28.4% to 31.7 billion minutes, which ended up increasing expenses, though the greater traffic volumes it realized should lead to future growth.
CAPS member j1mbo00 sees more bullish signs for this telecom services provider: "New Dutch auction, company is buying back nearly 10% of shares. At same market cap, this stock should be valued at $18.32."
Add Neutral Tandem to the Fool's free portfolio tracker, and see whether the rest of the market's missing a disconnect here.
Double tap
Not surprisingly, the same forces that drove Richmont Mines shares higher when the commodities bull market sent gold prices to record highs also dragged the company's stock down when that mini-bubble burst. Richmont's recent first-quarter earnings report showed a better-than-21% increase in gold sales, well ahead of the 14% growth rate it achieved in just the previous quarter.
Richmont still has high cash costs per ounce, and it expects them to remain elevated as the company pursues methods of extracting gold more efficiently. Total cash cost per ounce produced at its Beaufor mine rose 17% to $975 in the current quarter, up from $832, while the Island gold mine dropped 22%, leading to an overall drop of 12% and an average of $743 per ounce produced. Despite the decline, that's still almost twice the cash cost of gold producer Gammon Gold (NYSE: GRS ) .
The CAPS community still thinks Richmont is a golden opportunity; 97% of the members rating it believe the gold miner will outperform the broad market averages. Add the stock to your watchlist, then mine the Richmont Mines CAPS page for further insights into its future.
Take a recess
Market downdrafts can wreck havoc on your portfolio, but there's no reason to hide your money in the mattress. These three recession-fighters look like they have the goods to keep your portfolio on the upswing. Still, it pays to start your research on these stocks on Motley Fool CAPS. Then, weigh in with your own thoughts on which stocks you believe will keep the dogs of recession at bay.
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