Even though the Dow remains above the 12,000 mark, it would do investors well to consider the impact a renewed recession might have on their 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 been reporting strong revenue and earnings growth over the past few years. With a beta less than one, 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 |
Beta |
3-Yr Avg. Rev. Growth |
3-Yr. Avg. EPS Growth |
P/E Ratio |
|
|---|---|---|---|---|---|
|
Almost Family |
***** | 0.9 | 29% | 25% | 10.5 |
|
InterDigital |
**** | 0.7 | 20% | 132% | 15.6 |
|
Teva Pharmaceuticals |
***** | 0.2 | 20% | 26% | 12.9 |
Source: Motley Fool CAPS.
Almost home
Having to rely upon the kindness of strangers or the largesse of government are equally difficult positions to be in these days. Health-care provider Almost Family falls into the latter group more so than the former, so cuts in Medicare reimbursement rates hit earnings last quarter pretty hard. Profits fell 23% as rate cuts reduced consolidated and visiting nurse segment revenue.
Results were also affected by the continuing SEC investigation into whether the company improperly increased the number of home visits to patients in order to earn thousands of dollars in additional reimbursements from the health-care program. Rival Amedisys is also a part of that inquiry. And the Justice Department is investigating improper billing practices at Community Health Systems
With so much turmoil in the sector, the stocks of the players remain relatively depressed, yet the home-health care industry will continue to be a key component of our medical system. CAPS member SpartanMAC thinks Almost Family represents one of the best opportunities in the space:
Selling below intrinsic value. Good growth prospects. Management margins / returns are well above industry averages. Greenblatt pick.
Visit the Almost Family CAPS page and let us know whether the home-health care provider is on its way to a full recovery.
Connect the dots
Connectivity will be a key driver for the consumer electronics market, and it's leading investors to believe InterDigital is set for a big leap forward. Although the company recently reported a 33% decrease in revenues year over year, the decrease was due primarily to the absence of an agreement with major customer LG Electronics, but negotiations remain ongoing. Last year InterDigital also had a new contract with Casio Hitachi Mobile Communications, so the comparisons were skewed.
Yet it's the strength of continued expansion of connected devices -- with 2G, 3G, and 4G networks all playing an important role – that are attracting investors here. The LG contract will be key, because InterDigital also has deals in place with Samsung, HTC, and Research In Motion
CAPS member kleyau believes the InterDigital's patent portfolio will enable it to avoid a similar fate:
Marketing patents keeps the overhead low and margins up. Good debt to cash ratio. And Mr. Market just gave us a nice little dip.
Follow along with InterDigital's progress by adding the stock to the Fool's free portfolio tracker.
One-hit wonder?
Does buying a drug company with a one-hit drug about to go off-patent really make up for having all your own eggs in one basket? That's one of the questions Teva's investors need to ask themselves regarding the generic drug maker's decision to buy Cephalon
Teva gets more than 20% of its revenues from multiple sclerosis drug Copaxone, so wanting to minimize the importance of the treatment to its success is smart. But Cephalon gets most of its money (41%) from sales of sleep disorder therapy Provigil, and it loses patent protection next year. So is this smart? In a word, yes!
Cephalon has late-stage drug candidates developing over the next few years. It also has Treanda already on the market, which pulls in some $386 million annually. What Teva is buying is a pretty good pipeline of prospects that really needs only one or two big winners to justify the cost. Together, they'll have more than 20 branded products worth about $7 billion in annual revenues before any of the pipeline comes into play.
With the acquisition, Teva might be able to shake off its own pipeline concerns that CAPS member Dzerzhinsky says has been dogging the pharmaceutical:
Recent concern about the pipeline has beaten this stock down a bit but Teva's excellent management will bring it roaring back.
Add Teva to your watchlist and see if it develops into more than just a generic investment opportunity.
Take a recess
Market downdrafts can wreck havoc on your portfolio, but there's no reason to hide your money in 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.
