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.
|
Stock |
CAPS Rating (out of 5) |
3-Yr. Avg. Beta |
3-Yr. Avg. Rev. Growth |
3-Yr. Avg. EPS Growth |
P/E Ratio |
|---|---|---|---|---|---|
|
CYS Investments |
***** | 0.2 | 82% | 15% | 3.8 |
|
Universal Health Realty Income Trust |
**** | 0.8 | 42% | 67% | 6.4 |
Source: Motley Fool CAPS Screener.
Revving its engines
The Fed's long-running Operation Twist policy of artificially keeping interest rates low has benefited REITs like CYS Investments, Annaly Capital
Shares of CYS are up 24% over the past year, but are 44% higher since Bernanke initiated the policy last fall. Annaly is up 35% since then and American Capital surged 60%. Add in some eye-popping yields (CYS' dividend yields 14.7%) and it's good to be a REIT investor with Bernanke at the helm of monetary policy. As CAPS member goldengems noted earlier this year, "Fed assurance regarding interest rates to 2014 means CYS cost of borrowing will remain low, protecting the outsize dividends produced from its RMBS portfolio."
As an agency mREIT whose principal and interest payments are guaranteed by taxpayers, CYS presents what could be seen as a fairly low-risk, high-reward investment. The CAPS community largely agrees with that assessment, as 95% of those rating the REIT believe it will outperform the market indexes. Let us know in the comments section below or on the CYS Investments CAPS page if you agree the easy-money policies will continue wafting its shares higher, then add the stock to your watchlist to see how long Bernanke can float the economy before it all comes crashing down around us.
In a liquid state
Universal Health Realty Income Trust is also a REIT, but doesn't have nearly the same advantages that CYS does since it invests in hospitals, rehab facilities, and surgical centers across 15 states. The taxpayer isn't backstopping its investments, and its dividend, while healthy with a 6.2% yield, doesn't approach those offered by the agency REITs. It did, however, raise its dividend a half-penny to $0.615 per share, allowing it to continue its streak of bumping up its payout for 25 consecutive years. It also captured the attention of CAPS member Dividends4Life, who favorably mentioned the increase recently.
Despite the difficult economy, Universal Health has managed to grow revenues at a 6% compounded rate over the past three years, but at a 26% rate over the last four quarters. However, it's lagged behind a number of its peers including Ventas, which has a 31% CAGR over the last three years and doubled revenues over the past year, and Senior Housing Properties Trust
With less than two dozen All-Star CAPS members weighing in on Universal, it's flying under the radar of much of Main Street as well as Wall Street, but only one of the top members doesn't think it will be able to outperform the market averages.
Tell me on the Universal Health Realty Income Trust CAPS page whether the outperformance by its peers means that now its time has come. Then add the stock to your Watchlist to see whether it would be smart to trust this REIT for your portfolio.
Take a recess
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