2 Stocks to Beat a Recession

With the Dow falling back through the 13,000 level, the threat of a recession is palpable, so it would do investors well to consider the impact an extended 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 have reported 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.

Source: Motley Fool CAPS Screener.

The long-term view
With a new iPhone rumored to be hitting the market later this year, there's every reason to believe the pullback in Apple's stock (it's down 10% or so) over the past month is just the breather before the next leg up. Investors want to be a part of its phenomenal growth, but as it's around $570 a share, many are fearful of taking the plunge. Yet as the Fool's Tamara Rutter notes, there are other ways to play Apple's success and do it for less than $100: investing in its suppliers, like Cirrus Logic, TriQuint Semiconductor (Nasdaq: TQNT), and others.

Of course, the coattails effect doesn't always work out so well, as TriQuint's shares are down 64% from their 52-week highs, but the general trend is for the suppliers to enjoy a trickledown effect as each new Apple product introduction gains iconic status.

Which is why Cirrus Logic, whose own shares fairly mimic the rise and fall of Apple's, might be the best way to win here, as about 60% of its revenues are tied to Apple. When it reported earnings last month, it forecast lower results for the second quarter but said to watch out for "sharply higher" revenues in the back half of the year. That hint many took to mean the iPhone 5 was coming. The Apple juggernaut is the reason behind CAPS member RERInvesting believing the chip maker will outperform the market averages: "Cirrus has been able to perform well due to its dependency on Apple's production, which has been increasing consistently."

The word "dependency" is key, though, as reliance upon any one customer, distributor, or supplier heightens the risk. Yet I've gone and rated Cirrus Logic to outperform as well, as there's nothing to indicate Apple's stranglehold on its markets won't continue for the foreseeable future.

Let us know in the comments section below or on the Cirrus Logic CAPS page if you agree, and add the stock to your watchlist to let the chips fall where they may.

In a liquid state
Two years ago, everyone was abandoning the natural gas market for oil. Drillers like EOG Resources, SandRidge Energy (NYSE: SD), and Chesapeake Energy were padding their portfolios with oil assets as natural gas was proving to be less profitable.

That situation hasn't changed much today as natural gas prices are depressed even more than they were then, but now the new gold rush is into natural gas liquids, which carry higher margins. Energy Transfer Partners (NYSE: ETP) is paying $5.3 billion to buy venerable oil company Sunoco not for its extensive network of refineries, but rather for its liquids business. GMX Resources, Cimarex Energy, and Encana are all switching more toward liquids production with less focus on gas.

One of the top plays in the space is pipeline operator ONEOK Partners, one of the largest master limited partnerships whose first-quarter results benefited from its liquids assets. Operating profits in the segment surged 73% and it continues to invest in the business, building new pipelines and natural gas processing facilities. With its better margins and higher volumes, analysts expect ONEOK to continue generating profits.

CAPS member pchop123 sees nothing standing in ONEOK's path to prevent it from repeating its performance, and neither does the rest of the CAPS community weighing in on it, as 98% of them believe it will continue to beat the Street.

Keep track of its progress by adding ONEOK Partners to the Fool's portfolio tracker, then tell us in the comments section below if you think NGLs will continue to mean liquid gold for it.

Take a recess
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