With the Dow back above the 11,000 mark for the time being, but the threat of a double-dip recession still palpable, it would do investors well to consider the effect a renewed downturn might have on our 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 of one or less, these companies ought to react less violently to most market moves.
By adding in a measure of cheapness -- these stocks also carry a P/E ratio that's less than average -- we are hypothetically building 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)
|
3-Year Avg. Beta
|
3-Year Avg. Rev. Growth
|
3-Year Avg. EPS Growth
|
P/E Ratio
|
| Google (Nasdaq: GOOG ) |
**** |
0.9 |
15% |
24% |
18.6 |
| InterDigital (Nasdaq: IDCC ) |
**** |
0.6 |
17% |
81% |
19.5 |
| Synaptics (Nasdaq: SYNA ) |
**** |
0.6 |
17% |
44% |
14.6 |
Source: Motley Fool CAPS Screener.
Searching for a solution
I know my Foolish colleague Tim Beyers is a tech geek and is well ahead of the curve on most innovations, so when Google came out with its social networking site Google+, he was one of the first to jump on it and declare it a success, though it wasn't a Facebook killer.
Now we might be starting to see why. Keeping the service invitation-only didn't build the buzz it needed, so Google threw open the doors to everyone and the masses flooded in. But like the tides, they've since receded. Recent numbers suggest Google site traffic plunged 60% in recent days, meaning it's not likely to dethrone Facebook for social media dominance anytime soon. I use the latter service, and even with growing privacy concerns, I haven't really looked for an alternative. Yet.
But between the 800 million active Facebook users and perhaps 200 million Twitter users, do we really need another social media outlet? LinkedIn (Nasdaq: LNKD ) has done a respectable job so far catering to the professional crowd, but a site for the masses seems less urgent.
Maybe its social media effort isn't the end all, be all, but CAPS member hurricanehedge says until people stop using Google as a verb, it will remain a relevant investment.
Add Google to your watchlist.
Hanging up on wireless
The euphoria achieved after Nortel's patents sold for $4.5 billion, followed by Google's purchase of Motorola Mobility for more than $12 billion, had investors in a frenzy thinking about how much InterDigital could get if it sold itself and its 8,000-plus patents to the highest bidder. As it turns out, it was apparently not as much as expected. The wireless specialist could only generate $1 billion to $2 billion worth of bids, which was obviously well below their market cap peak at the height of the mania.
The problem is, after Google opened its vault, and the consortium of Nortel buyers including Apple (Nasdaq: AAPL ) and Research In Motion (Nasdaq: RIMM ) made their purchases, there weren't many buyers with money left in the market.
Along with the euphoria, InterDigital's stock price has chilled, falling 42% from its highs. With or without a deal for its patent portfolio, the CAPS community thinks InterDigital will succeed, as 96% of the nearly 1,300 members rating the wireless specialist say it will outperform the broad market averages. You can tell us on the InterDigital CAPS page or in the comments section below if you agree, and then follow the buyout bids by adding it to your watchlist.
Can't touch this!
What politicians can't grasp as they seek to protect businesses from competition is that as one industry dies another is born. There can be displacement, like when buggy-whip makers saw the automobile industry grow, but in time the new industry typically surpasses the old.
Chip maker Synaptics is seeing a similar shift in industry dynamics as the PC industry contracts in the face of growing mobile computing demand. Fortunately for the chip maker, it has a foot in both worlds and should recover from the dip it saw in revenue last quarter. TouchPad chips are giving way to the need for touchscreen chips and while it counts HTC, Samsung, and LG Electronics among its customers (giving it a 30% share in such sensors), it does face stiff competition from Atmel (Nasdaq: ATML ) (35% of the market) and Cypress Semiconductor (30% share).
Other businesses are also reeling from the upheaval in computing, but whether they'll recover as Synaptics has the chance to do remains to be seen. Earlier this summer, there4im suggested the chip maker had a touch of greatness.
I see this company not just as the TouchPad company, but as a human interface company, and I don't think they are done tinkering with the human interface. Thus, I think there is room for growth. Innovation = Growth... and these guys have proven that they are good at it.
You can tell us on the Synaptics CAPS page or in the comments section below if you agree, and then follow the action by adding it to the Fool's portfolio tracker.
Take a recess
Market downdrafts can wreak havoc on your portfolio, but there's no reason to hide your money under 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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