5 Stocks to Beat the Recession

With the Dow still well below the psychologically significant 12,000 mark, investors would do well to consider the impact that 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 investor-intelligence database Motley Fool CAPS to look for companies that have proved to be less volatile than the market but have also been reporting strong revenue and earnings growth over the past few years. With a beta less than that of the S&P, these companies ought to react less violently to any market swoon.

By adding in a measure of cheapness -- these stocks also carry a price-to-earnings ratio that's less than average -- we build in an additional margin of safety. However, with CAPS investors rating them at three to five stars, we're getting companies that are expected to outperform. Our data suggests that the highest rated stocks in the database significantly outperform the lowest-rated ones.

When I ran the screen, it returned 72 stocks. Below, I've listed five that look as though they could do well in any extended downturn.

Source: Motley Fool CAPS screener.

A slick move
Falling oil prices are generating potential gains in myriad industries, but they might not be reflected in results until later in the year. Motley Fool Income Investor recommendation Calumet Specialty Products -- think not only fuel oils and lubricants but also petroleum products used for cosmetics, hair care, and animal-feed supplements -- hit a rough patch earlier this year. But now with expansion in place, reduced costs related to new facilities behind it, and the benefit of lower oil prices being realized, future earnings ought to be better.

CAPS member gman444 sees that as a prescription for steady performance, all while getting paid for patience with a dividend.

Beaten down stock. Way down. This is a play on the crack spread improving for the refiners. I don't see oil getting back to it's spike to $147 for awhile, and it may even go down further. CLMT should be a steady, if slow riser in this climate, and the dividend helps to curb one's impatience.

Build on it
When you're drydocked in the oil business, your rigs are sitting idle. And drydocking gave offshore construction and engineering company Global Industries fits this past quarter. A number of heavy equipment operators, such as Manitowoc (NYSE:MTW), have been buckling under the strain lately, but Global also had to contend with poor weather, issues with port clearance and permitting, and delays in obtaining support vessels and equipment from customers. The troubles caused a $0.12-per-share loss this quarter. But the long-term outlook in the sector is still promising, and Global has the wherewithal to prosper still.

TMFMossBeliever finds that Global has been using its resources to increase value for customers  and that its value should come to the fore now that the drydocking issues are behind it.

The company is in the process of expanding and updating their fleet so that they can offer higher value services, so not only are they trying to expand geographically, they are moving up the value chain in their offerings. This provides nice growth prospects in a field that doesn't appear to be going anywhere any time soon (regardless of the thought that a recession is going to dramatically reduce the world's demand for oil, which it won't for long). However, these strategic adjustments also create uncertainty as these are new areas and management has already shown some shortcomings.

A defensible position
L-3 Communications doesn't exactly fly under the radar, and the market has been boosting its prospects over the past month after initially evincing no love for the aerospace and defense contractor. Yet like Raytheon (NYSE:RTN) and other similarly situated contractors, the profit potential has a certain appeal. As CAPS member PapaShaq simply notes, "Defense is here to say."

Take a recess
Market downdrafts can wreak havoc on your portfolio, but there's no reason to hide your money under the mattress. These five 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. Use the screener, read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think can keep the dogs of recession at bay.