The economic downturn and market turmoil have wreaked havoc on most investors' portfolios -- not to mention their confidence. Every day brings news of growing unemployment, massive layoffs, financial bailouts, bankruptcies, frauds, and other symptoms of the sick economy. It's no surprise that some investors are staying on the sidelines, reluctant to add new investments in this weak business environment.

Stash some cash
While many investors consider the carnage an excellent opportunity to buy good companies that have been irrationally marked down to bargain prices, other more cautious investors -- let's call them the scaredy-cats -- think the economy might take longer to recover than many expect, and it still might be too early to get back in the pool.

For the very cautious scaredy-cat investor, FDIC-insured deposit accounts are a safe option, with some online accounts currently yielding between 2.5% and 3%. Willing to take on a bit more risk? An investment-grade corporate bond fund or exchange-traded fund (ETF) -- some with yields greater than 5% -- may be a place to hide until things turn up.

Strong, profitable companies with solid balance sheets
But for those scaredy-cat investors who still want some exposure to equities and also to limit their downside risk, here are four companies that should hold up relatively well in a weak economy. These are strong, well-established, profitable companies with stable businesses, market leaders with solid balance sheets and strong free cash flow that stand to gain market share through the downturn. Making them even more attractive, three of the four companies have dividend yields over 3%.


Market Cap

Enterprise Value



Div. Yield

Johnson & Johnson (NYSE:JNJ)






PepsiCo (NYSE:PEP)






McDonald's (NYSE:MCD)






CVS Caremark (NYSE:CVS)






Source: Yahoo! Finance, company earnings releases. Data as of Feb. 20, 2009.
*Trailing 12 months.

Respect yourself
Global health-care giant Johnson & Johnson is an impressive business that even Eeyore would like. Recently named Barron's "Most Respected Company" for the second year in a row, Johnson & Johnson is one of only a handful of companies with a top AAA credit rating from Standard and Poor's. In 2008, it generated $12.2 billion in free cash flow.

Johnson & Johnson is diversified across three business segments: pharmaceutical (39% of 2008 revenue), medical devices and diagnostics (36% of revenue), and consumer (25%). Its products include eight drugs that each recorded more than $1 billion in sales in 2008, as well as drug-eluting stents, orthopedic and spinal products, eye-care, wound-care and surgical products, and numerous others. The consumer segment includes brand-name products such as Band-Aid, Johnson's Baby, Neutrogena, Tylenol, Listerine, and Benadryl.

I'll drink (and snack) to that
PepsiCo is another strong company that scaredy-cats can look to as they slowly wade back into market waters. The global beverage and snack-food maker's products include brands such as Pepsi, Gatorade, Frito-Lay snacks, and Quaker Oats food products.

The company reported 2008 results last week, with total revenue of $43.3 billion growing 10% year over year, and core EPS up 9%. Operating cash flow came in at $7 billion, while capital expenditures totaled $2.3 billion. Management is looking for mid- to high-single digit growth in constant-currency revenue and earnings per share in 2009, though it expects a negative impact from foreign exchange rates due to the strong dollar.

On the value menu
In spite of the economic slowdown (or perhaps because of it), fast-food restaurant operator McDonald's has been on a roll, recently announcing a surprisingly strong 7.1% increase in worldwide same-store sales in January, with U.S. same-store sales up 5.4%.

The world's largest fast-food company has been able to attract cash-strapped consumers with its "value menu" and new product offerings, and industry watchers say McDonald's benefits as consumers "trade down" to lower-cost restaurants. Most recent growth has come from abroad, and the company continues to generate lots of cash that it has used to pay dividends, buy back stock, and invest in new stores and improving operations -- just the thing to give scaredy-cats some courage.

Filling the prescription
Finally, CVS Caremark operates the largest retail drug store chain in the U.S. and is a major provider of pharmacy benefit management (PBM) services. The company has performed well in spite of competition from other drug stores, large grocery stores, and megastores like Wal-Mart (NYSE:WMT). Competitors in the PBM business include Medco Health Solutions (NYSE:MHS) and Express Scripts (NASDAQ:ESRX).

CVS is also a leader in the development of in-store health clinics, with more than 500 MinuteClinics in 25 states. These clinics accept most health insurance and provide basic health-care services, such as treatment of common illnesses and providing vaccinations and health tests, at reasonable prices.

This week, CVS reported record revenue, operating profit, and earnings for the fourth quarter and full-year 2008. In a quarter when many businesses struggled, CVS posted a 10% increase in revenue and a 20.7% increase in adjusted operating EPS. For the full-year 2008, CVS generated $2 billion in free cash flow, and management guided for $3.5 billion in free cash flow in 2009.

Recession resistant, not recession proof
While no business is totally recession-proof, the companies discussed above should be recession resistant. While their growth may be slowing, these are still strong and profitable companies that can provide some stability for scaredy-cat investors looking to anchor their portfolios in turbulent economic times.

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Fool contributor Brian Bauer is an Eeyore at times, but he remains cautiously optimistic on the stock market. He owns shares of Johnson & Johnson. Wal-Mart is an Inside Value selection. Medco Health Solutions is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy with a strong balance sheet.