With the Dow well above the 12,000 mark again but the threat of a double-dip recession still present, 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 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 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.
CAPS Rating (out of 5)
3-Year Average Beta
3-Year Average Revenue Growth
3-Year Average EPS Growth
|Teva Pharmaceutical (Nasdaq: TEVA )
|Semtech (Nasdaq: SMTC )
Source: Motley Fool CAPS Screener.
The long-term view
With the pharmaceutical industry driving over the patent cliff, the inexorable force of generic drug ascendancy will drive Teva Pharmaceutical forward. Generics already account for more than three-quarters of all prescriptions written today, and some of the biggest pharma giants will lose tens of billions in the process as more drugs go off-patent. The loss by Pfizer, Merck, and AstraZeneca will be the gain of Teva, Mylan (Nasdaq: MYL ) , and other generic drug outfits. By 2015, blockbuster drugs with annual sales of $170 billion will go off-patent.
What Teva also has going for it is its own branded drug platform, including drugs like Copaxone, from which it derives more than 20% of its revenues. Yet that means it also faces the loss of its own patent protection in due time.
Highly rated CAPS All-Star dividendsrus still expects the generics business to be a growth industry for some time to come, as apparently does the broader investment community since 97.5% of the more than 2,500 members rating the drugmaker expect it to outperform the broad indexes.
Add Teva to your watchlist and tell us on the Teva Pharmaceutical CAPS page whether you think this is a generic opportunity it can capitalize on.
Calling up growth
The August flooding in Thailand is still being felt today even after the country has dried out and tries to rebuild. Seagate Technology (Nasdaq: STX ) faced supply-constrained factories and the harder-hit Western Digital reported the effect the Thai flooding had as it struggles to match orders.
Analog-chip maker Semtech also dampened expectations for the current quarter because it counts on large customers like Cisco Systems (Nasdaq: CSCO ) , which needs the disk drives for its set-top boxes and optical networking products. That particular niche was the reason behind Semtech's recent purchase of Gennum, a maker of high-speed analog and mixed-signal semiconductors for the optical communications and video broadcast markets.
The chip maker expects the acquisition to be accretive to earnings in 2013, adding more than $0.20 per share, and more than $0.40 in 2014. Thailand will come back, whatever the short-term supply issues are, and Semtech should be ready for growth afterward.
With more than 100 CAPS members rating Semtech, 91% see it being able to beat the market. Follow along to see whether the chip maker can hook up more customers by adding Semtech to your watchlist.
Take a recess
Semtech may struggle this quarter, but there are plenty of other companies out there that investors need to watch during this earnings season. In the Fool's "Fourth Quarter Earnings Report: 7 Stocks You'll Want to Watch," you'll find information on this quarter's possible big performers. It's completely free for our readers, so click here to access your free report today.