3 Stocks to Beat a Recession

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 that 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

CAPS Rating (out of 5)

Beta

3-Yr Avg. Rev. Growth

3-Yr. Avg. EPS Growth

P/E Ratio

ManTech International (Nasdaq: MANT  )

****

0.2

16%

16%

12.2

NetEase.com (Nasdaq: NTES  )

****

1.0

40%

29%

9.3

Sturm, Ruger (NYSE: RGR  )

****

0.2

19%

91%

14.4

Source: Motley Fool CAPS Screener.

Do you hear that?
The world is no less a dangerous place despite the death of Osama bin Laden. In the U.S. War on Terror, X-ray scanners from American Science & Engineering (Nasdaq: ASEI  ) are unpopular with the traveling public and Boeing's bombers always carry the potential for collateral damage. But doing battle doesn't always mean grinding the gears of war. ManTech International and SAIC are two companies with as low a profile as the shadowy services they support.

ManTech, for example, provides mission-critical IT support and systems testing with employees designated with special clearances. From cyber-security to the technical support behind unmanned aerial surveillance aircraft like Global Hawk and DarkStar, it's as cloak-and-dagger as the CIA, but you can buy the stock!

ManTech isn't a household name like other defense contractors, but 98% of the more than 300 CAPS members rating the super sleuths think it will outperform the broad market averages. No need to be surreptitious, though, share your thoughts on its future on the ManTech International CAPS page, or in the comments section below.

Price is what you pay
Gaming fads come and go, it's true, and some companies don't live up to their promise. I mean, how long has it taken for Duke Nukem Forever to come around? Yet the really good game companies like Activision Blizzard (Nasdaq: ATVI  ) nurture their franchises and develop new ones to supplement them.

It's in the same vein that NetEase.com is viewed. It licenses Activision's wildly successful World of Warcraft in China, has recently released Activision's StarCraft II there, and has gone into unlimited beta testing of a new franchise called Ghost. So while NetEase's first-quarter results were something of a mixed bag, the potential to continue growing its base gives investors hope of a multibagger going forward.

CAPS member thunderhawke23 believes it's a financially sound company that has proven its capabilities in the biggest market:

Strong financial base, already profitable in China in a huge growing Internet market

Add NetEase to the Fool's free portfolio tracker and follow along on whether it's just gaming the system.

Double tap
Discount retailer Wal-Mart (NYSE: WMT  ) decided it was time to be locked and loaded as it brings back firearms sales to some stores. It halted gun sales at most of its stores five years ago -- just before a buying binge erupted over fears Congress would try to pry guns from the hands of law-abiding citizens. Bad move, as there's something just right about putting that Beretta in the shopping cart next to the jug of orange juice.

So now it's trying to reverse almost two straight years of quarterly sales declines. Good news for gunslingers like Smith & Wesson (Nasdaq: SWHC  ) and Sturm, Ruger, and likely Wal-Mart, too, as it seems to have timed this move right.

According to the FBI's NICS data, gun sales rose more than 12.7% in the first quarter and were up 15% in March alone. Sturm, Ruger said dealers were placing orders for Ruger products at a higher rate earlier this year, and Smith & Wesson saw division sales expand 6% in the fiscal third quarter. Some 92% of the CAPS members rating Sturm, Ruger expect it to make investors safe.

Feeling lucky, punk? Well, are ya? Go ahead and give us your opinion on the Sturm, Ruger CAPS page, then add the gun maker to your watchlist to see if it shoots the bull case for growth full of holes.

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.

The Motley Fool owns shares of Activision Blizzard, ManTech International, Wal-Mart, and SAIC. Motley Fool newsletter services have recommended buying shares of Wal-Mart, American Science & Engineering, Activision Blizzard, NetEase.com, and SAIC. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey owns a Smith & Wesson .38 Special, but does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 29, 2011, at 10:19 AM, Lsereny wrote:

    Re: "In the U.S. War on Terror, X-ray scanners from American Science & Engineering (Nasdaq: ASEI ) are unpopular with the traveling public"

    To the best of my knowledge there are NO AS&E scanners deployed in the US, so they CAN'T be ubpopular. The X-Ray scanner used in the airports are made by OSI.

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