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 proved to be less volatile than the market but have reported strong revenue and earnings growth over the past few years. With a beta of 1 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.
Following 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
|Intel (Nasdaq: INTC )
|Teva Pharmaceuticals (Nasdaq: TEVA )
Source: Motley Fool CAPS screener.
Revving its engines
Intel reports earnings this afternoon after the markets close, and if the numbers come in below expectations as analysts anticipate, then we can figure everyone else will tumble, too. Advanced Micro Devices (NYSE: AMD ) pre-warned last week its quarterly results will see profits drop 11%, and chipmaking equipment shop Applied Materials (Nasdaq: AMAT ) also slashed guidance.
But penalizing Intel for a ho-hum quarter will be a bit shortsighted, and investors might want to be ready to pounce if things get out of hand. Intel has been noticeably delinquent in getting its chips into notebooks and smartphones, but the chipmaker recently said its chips will appear in three smartphones, more than 20 tablets, and a host of Ultrabooks. No doubt it will get a stiff challenge from ARM Holdings, which dominates the smartphone market and has a sizeable presence in tablets, but with a new Windows 8 OS due out in the fall, Intel's earnings report today could just be a lull as customers hold off on purchases until the new stuff hits the shelves.
While skeptical analysts like Bernstein Research have sharply cut estimates, they're still not willing to count it out, noting that anything Intel posts will be decidedly better than what AMD warned about. I agree with CAPS member valuemoneygreen, who instead points to the benefits of Intel's brand and pricing power that will overcome "choppy" earnings.
Let us know in the comments section below or on the Intel CAPS page if you think today's earnings will be the calm before the storm or the pause the refreshes down the road.
No generic opportunity
Teva Pharmaceutical won't release its earnings for a few weeks yet, but analysts are expecting more from it than they are from Intel, with profits forecasted to rise 16% this quarter on a 21% jump in revenues. That can largely be attributed to the success it's enjoyed with MS treatment Copaxone, which contributed nearly 20% of Teva's revenues last year and owns 40% of the market for such treatments.
While there had been some doubts whether Copaxone could withstand generic challenges to it, a British court just sided with Teva in its patent infringement lawsuit against Mylan. Coming as it does on the heels of a similar victory in the U.S. against Momenta Pharmaceuticals and others, Teva is confident it will enjoy exclusivity until 2014 and possibly as late as 2015.
Copaxone is part of Teva's thriving branded-drug business that typically hides in the shadow cast by its generics business but contributes some $8 billion annually to revenues. Still, generics make up almost $11 billion in sales, and because of delayed releases on some big-name drugs, as well as no-gos on such blockbusters as generic versions of GlaxoSmithKline's Avandia and Pfizer's (NYSE: PFE ) Lipitor, the segment has been performing below expectations.
Yet with the patent cliff rapidly approaching for many big pharmas, CAPS All-Star member Chemdawg says Teva is ready to capitalize on the occasion: "lots of drugs coming off patent protection helps generics big time ... decent dividend." Yes, it is nice to get paid while waiting for catalysts to materialize.
I've rated Teva to outperform the market indexes on CAPS, but tell me on the Teva Pharmaceutical CAPS page whether you agree this is more than just a run-of-the-mill chance to profit with the drugmaker.
Take a recess
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