With the Dow just below the 12,000 mark, but the threat of a double-dip recession still palpable, it would do investors well to consider the impact a renewed downturn might have on our 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 proved to be less volatile than the market but have been reporting strong revenue and earnings growth over the past few years. With a beta of 1 or 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 a margin of safety. However, with the CAPS community according them high ratings, we're getting companies that are expected to outperform.
Following are a handful of stocks that look as if they could do well in any extended downturn.
CAPS Rating (out of 5)
3-Year Average Beta
3-Year Average Revenue Growth
3-Year Average EPS Growth
MV Oil Trust
Source: Motley Fool CAPS screener.
An Apple a day
It may seem funny recommending Bio-Reference Labs as a stock to hang onto in recessionary periods after it's just been accused of being a financial sham, but that's only if you buy into flimsy discussion-board chatter as a substitute for rigorous research. I don't.
Last quarter, sales for the full-service clinical testing lab rose 22% as business shifted to higher esoteric patient testing, which drove up net revenue per patient. Analysts are looking for revenues to grow another 19% in the current quarter, with 22% growth figured in for the year. That has them forecasting 13% and 21% growth in earnings for the quarter and year, respectively. That's far better than what Wall street is saying either LabCorp
With shares down by more than 50% from recent highs, I've marked Bio-Reference to outperform the broad indexes. Add the clinical testing lab to your watchlist, and tell us on the Bio-Reference Labs CAPS page if you think that where there's smoke, there's fire in the allegations.
A refined opportunity
"It's complicated." That might be a phrase used to define how investors look at MV Oil Trust, an oil and gas E&P with assets in Kansas and Colorado. Actually the purpose of the trust is to collect the term net profits received from MV Partners, which has 1,000 producing wells in the two states but is actually controlled by two other companies -- Vess Oil and Murfin Drilling. As I said, it's complicated.
Performance in 2010 was somewhat hampered by hedge contracts for oil that was priced between $63 and $69 a barrel. There are no hedges in place this year, which is good, since oil now hovers around the $100-per-barrel mark.
For an investor willing to wade into MV Oil Trust, it could be a profitable venture. You have to be mindful of when a trust agreement expires, but with a long enough time horizon, you can extract value from it. Earlier this summer, CAPS member DavidOfDukeLow thought the high-yielding stock offered a lot of potential for the relatively low risk that was being incurred.
Shareholders can probably count on healthy dividends for quite some time. The trust isn't scheduled to terminate until June 30, 2026, or after 11.5 million of barrels oil equivalent (MMBOE) have been produced, whichever is later. Considering that fewer than 4 MMBOE have been produced in the five years since inception, the trust ought to be able to maintain a high payout for at least another decade.
That's similar to how investors look at iron ore mining specialist Mesabi Trust
A real stinker
Regardless of economic conditions, you still have to take out the trash. That bodes well then for waste-management leaders Republic Services and Waste Management
Yet one man's trash is an investor's gold mine. This past quarter, Republic reported that revenues grew almost 3% while profits soared 44%, though results were tempered by the loss of several important contracts. Analysts are expecting incremental growth in revenues for the full year for Republic, but 10% growth in profits. Longer term, they see Republic generating 14% compounded annual returns, better than what they're forecasting for Waste Management.
Don't look for garbage haulers to be a sexy, high-growth industry. They're more like steady performers, but ones with a high "ick factor" (hello, Peter Lynch!). Yet there are some formidable obstacles in front of them, as not many places want landfills or transfer stations located in their backyard. Such hurdles help explain why shares of Republic are down 14% over the past six months, but 96% of the CAPS All-Stars rating the waste-management specialist say it will go on to outperform the broad indexes.
Take a recess
Market downdrafts can wreak havoc on your portfolio, but there's no reason to hide your money under 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.
Fool contributor Rich Duprey owns shares of Bio-Reference Laboratories, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Waste Management and Bio-Reference Laboratories. Motley Fool newsletter services have recommended buying shares of Quest Diagnostics, Laboratory of America Holdings, Waste Management, and Republic Services and creating a write covered strangle position in Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.