Even though the Dow remains above the 12,000 mark, it would do investors well to consider the impact a renewed 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 Motley Fool CAPS supercomputer 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 one, these companies ought to react less violently to any market swoon.
By adding in a measure of cheapness -- these stocks carry a P/E ratio that's less than average -- we build in a margin of safety. However, with the CAPS community according them high ratings, we're getting companies that are expected to outperform.
Below are a handful of stocks that look like they could do well in any extended downturn.
|
Stock
|
CAPS Rating
(out of 5)
|
Beta
|
3-Year Avg. Rev. Growth
|
3-Year Avg. EPS Growth
|
P/E Ratio
|
| AmTrust Financial Services (Nasdaq: AFSI ) |
***** |
1.0 |
22% |
18% |
8.3 |
| China Petroleum & Chemical (NYSE: SNP ) |
***** |
0.7 |
17% |
41% |
7.7 |
| Synaptics (Nasdaq: SYNA ) |
***** |
0.7 |
17% |
41% |
13.6 |
Source: Motley Fool CAPS screener.
Do you hear that?
As a property and casualty insurer that derives almost half of its gross written premium from small-business workers' comp, AmTrust Financial is a niche insurer that's grown revenues at a compounded 32% rate annually over the past five years. It's a crowded field; AmTrust says some 100 insurers like Amerisafe (Nasdaq: AMSF ) compete for business.
Yet it also services specialty lines and extended warranties that aren't as fully developed in the industry as workers' comp is. Covering legal expenses in the event of unsuccessful litigation, property damage caused by consumer products for residential properties, and extended warranties for computers, consumer electronics, appliances, and cars -- you know, all those warranties you're generally warned against buying -- has proven to be a profitable mix. RLI (NYSE: RLI ) has also found it a lucrative niche because it is less-regulated and customers vie for services on more than just price.
CAPS member KCinAustria suggests RLI looks more financially stable than AmTrust, but enumerates reasons why the niche insurer is a solid investment in its own right:
It's an easy to understand business (workers comp insurance, etc.), it actually makes money on it's insurance business (premiums larger than payout ratio and expense ratio combined...don't remember the exact %, but seemed quite reasonable for a number of years), it's not capital intensive, and the long term prospects seem reasonable. (I doubt workers comp insurance, or insurance in general, is going away in the next 5, 10, 20, or 50 years.)
Share your thoughts on its future on the AmTrust Financial CAPS page or in the comments section below.
Price is what you pay
Rising oil prices cut into margins for Chinese oil giants PetroChina (NYSE: PTR ) and Sinopec because, as government-owned entities, they had to make up the difference when privately held refiners cut back on production, dropping run rates down to 30% of capacity. China keeps worrying about its economy overheating, but not allowing pricing to play the important role it does -- by keeping the oil flowing when conditions indicate it should stop – lets such anomalies occur.
Though refining at a loss caused Sinopec's refining segment to lose $84 million, that was more than made up for by its exploration and production unit, which benefited from higher oil prices and generated a $2 billion operating profit, up 14% from the year-ago period. Earlier it was active buying up international assets for its portfolio.
With 95% of the CAPS members rating the oil giant expecting it to outperform the broad market averages, it's apparent they see the government entity winning no matter which way the market goes. Add Sinopec to the Fool's free portfolio tracker and follow along to see how long China can goose its markets.
Double tap
It's not the PC market that's been affected so much by the iPad revolution; it's the notebook and netbook segment that has suffered the most. Sure, PC sales have fallen at Dell (Nasdaq: DELL ) and others, but the market researchers at Gartner agree there's less direct substitution of tablets for desktops as there is in the mobile market. For PC makers, it's more of an economic thing, more of the recession crimping the ability or desire of consumers to upgrade their home machines for new units.
Either way, it hasn't been good news for TouchPad maker Synaptics, whose technology is built into the majority of notebook computers but not in the iPad. Still, investors are counting on the finger-sensitive folks getting their product into the iPad competitors' tablets. With the real onslaught of tabs hitting now and later this year, Synaptics will likely see operations rebound.
CAPS member DargFool says "touchscreens are here to stay," and with Synaptics virtually inventing the technology, it will be the biggest winner. Add the stock to your watchlist and then see if it can touch gold again over on the Synaptics CAPS page.
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 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. Then weigh in with your own thoughts on which stocks you think can keep the dogs of recession at bay.
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