With the Dow just above the 12,000 mark again, 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 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 of one 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.
Below are a handful of stocks that look like they could do well in any extended downturn.
CAPS Rating (out of 5)
3-Year Avg. Beta
3-Year Avg. Rev. Growth
3-Year Avg. EPS Growth
Alliance Resource Partners
Source: Motley Fool CAPS screener.
The long-term view
Unlike Peabody Energy
Analysts recently downgraded Peabody and said the entire sector is going to have trouble maintaining the pace set in 2011. Coal prices will be down, volumes off, and flat heating prices will pressure Peabody, Walter Energy
This year was certainly strong for Alliance, as it recorded record third-quarter results, but it may be able to bypass a lot of the problems that will affect its peers because of the long-term contracts it has in place. Some 90% of its 2010 sales tonnage and total coal sales were sold under long-term contracts and has commitments extending out to 2016. Perhaps the greatest risk is that two utilities account for almost 30% of its sales.
CAPS member jgg1024 says the long-term health of the coal industry remains intact and Alliance has been an attractive player in the space and will likely continue to be one:
Coal supplies more than half the electricity consumed in the U.S. and a quarter of the world's coal reserves are in this country. It has a healthy dividend yield of 4.8% and a 5 year dividend growth rate of 13.72. It is outperforming both the S&P and its' peers
A conga line higher
Don't worry too much that Newmont Mining will falter if the protests that have delayed its Conga project in Peru keep the mine closed indefinitely. The world's second-largest gold miner, after Barrick Gold
No doubt Newmont will take a hit. Conga represents its largest investment project that could yield as much as $2 billion annually in gold at current prices, but local populations worry about the corruption of water supplies and have taken to protesting and damaging equipment. As global financial struggles keep the price of the precious metal bubbling higher, companies are going to seek to expand their output and clashes like this will become more frequent. But with other resources available to it, Newmont should be able to hit its goals regardless.
CAPS member Investingyoung87 says Newmont's stock is being unfairly discounted by the market:
While the metal market is volatile gold mining companies have continued to be undervalued. As gold continues to climb throughout the end of 2011 hopefully NEM will catch up. Also dividends if gold stays above 1700!
Follow along to see if the Conga project gets back online by adding Newmont Mining to your watchlist.
Dialing up growth
Now that it's buried the hatchet with Advanced Analogic Technologies, Skyworks Solutions will be able to refocus its efforts on growing sales. The power management business it will acquire from Advanced will give it yet another avenue into the burgeoning demand for smartphones. The deal will be immediately accretive to Skyworks' 2012 bottom line and with a better lineup of offerings for tablets and set-top boxes, the smartphone business will allow it to improve its vertical market product line.
Earlier this month I indicated on CAPS my belief that Skyworks will outperform the broad market indexes. Although down a few points right now, I think it will get back on the iPhone gravy train and reverse course. But don't go by what I say. Tell us on the Skyworks Solutions CAPS page or in the comments section below which way you think it will go, then follow the power amplifier specialist by adding it to your watchlist.
Take a recess
Market downdrafts can wreak 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.
Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Alliance Resource Partners and Walter Energy. 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.