5 Stocks to Beat the Recession

The Dow remains below the psychologically significant 12,000 mark, and it recently flirted with dropping below 11,000. In an environment like this, investors would do well to consider the impact a prolonged 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 stock screener at our investor-intelligence database, Motley Fool CAPS, to look for companies that have proven to be less volatile than the market, but which have been reporting strong revenue and earnings growth over the past few years. With a beta that's around half that of the S&P 500 (or even 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 an additional margin of safety. However, with CAPS investors rating them at four or five stars, we're getting companies that are expected to outperform.

When I ran the screen, it returned 38 stocks. Below, I've listed five that look like they could do well in any extended downturn.

Stock

CAPS Rating (out of 5)

3-Year Avg. Rev Growth

3-Year Avg. EPS Growth

Beta

P/E Ratio

Archer-Daniels Midland (NYSE: ADM  )

****

15.3%

36.3%

0.5

7.8

BJ Services (NYSE: BJS  )

*****

17%

21%

0.4

12.9

Unit (NYSE: UNT  )

*****

21.3%

27.9%

0.17

13.0

WellCare Health Plans (NYSE: WCG  )

****

56.6%

55.3%

0.3

5.3

XTO Energy (NYSE: XTO  )

*****

31.1%

39.4%

0.1

16.0

 Source: Motley Fool CAPS.

Managing expectations
The market is worried that managed-care provider WellCare Health Plans will suffer at the hands of Congress, which enacted $13.5 billion in election-year cuts to a Medicare program that pays health insurers. Nor does it help that WellCare is being investigated for possible fraud, but the company has cleaned house and hired new management in an effort to put the issue behind it. With a P/E ratio that's well below those of rivals like Amerigroup (NYSE: AGP  ) -- not to mention the industry as a whole, which will feel the pinch of the new law -- WellCare may be better positioned to do best in the long run.

Of course, that's not enough to convince some investors. CAPS members like sanchola feel the whole sector may see a decline: “New medicare bill, all health care is falling. Let's see if it holds.”

Getting an earful
Major food processors like Cargill and Bunge (NYSE: BG  ) were recently raided by European Commission authorities, who were searching for evidence that the companies were restricting trade and acting as a cartel. In this environment, the raids are not entirely surprising; with the price of feedstock and human food staples spiraling ever upward, the search for culprits turns to every corner. Corn and seed producer Archer Daniels Midland -- which was not included in the raids -- has been enjoying the rising prices, which many have blamed not on speculators but on ethanol producers and demand in emerging markets. Some, however, do wonder whether the industry is heading for a bust.

Yet it's that demand side of the equation that has investors like CAPS member joker245 backing what he calls the "Evil Empire of Agri-business":

How can you bet against the Evil Empire of Agri-business? Food prices will stay high thanks to emerging market demand. Stock price is at a 52 wk low. P/E < 9x. Pays a dividend. This one works on CAPS and the real world.

Not Bakken away from opportunity
The Bakken shale oil deposits may one day turn into a rich pool of oil assets that will prove to have been underestimated -- though not by everyone. XTO Energy has been buying up leaseholds there, and the company controls a large swath of property that may turn into a boomtown bonanza. This is something top-rated CAPS All-Star member feiled seems to have recognized. His simple, bull pitch for XTO? "Bakken shale, Bakken shale, Bakken, Bakken, Bakken shale!!!"

SapphireSeas believes XTO is one you can hold onto for a few years without having to think about it:

Another strong energy play operating in the American west / mid-west, well-positioned to take full advantage as oil field developer and operator during a time of constrained demand. Outperform 2-3Y, then reevaluate.

Take a recess
Market downdrafts can wreck havoc on your portfolio, but there's no reason to hide your money in the mattress. These five recession fighters look to have the goods to keep your portfolio on the upswing, but have we heard your thoughts yet? Head over to Motley Fool CAPS now and weigh in with your thoughts on these -- or any other stocks you think can keep the dogs of recession at bay.

Amerigroup and Unit are both Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey 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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