With the Dow hovering at the 13,000 level, the threat of a recession is palpable, so it would do investors well to consider the impact an extended 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 have reported 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 is a pair of stocks that look like they could do well in any extended downturn, but let's take a closer look to see if that theory holds.


CAPS Rating (out of 5)

3-Year Avg. Beta

3-Year Avg. Rev. Growth

3-Year Avg. EPS Growth

P/E Ratio

PotashCorp (NYSE: POT) ***** 1.0 18% 24% 15.6
Quality Systems (Nasdaq: QSII) **** 0.5 18% 16% 13.1

Source: Motley Fool CAPS Screener.

Revving its engines
With the Midwest in the grips of the worst drought in 50 years, corn prices have surged to record highs. The Department of Agriculture says the drought has ripped through 90% of the Corn Belt with 40% of the crops in the worst areas. Soybean prices are also on the rise.

Since the beginning of June, potash producer PotashCorp has seen its shares jump 14%. As the drought worsened, other fertilizer companies such as CF Industries (NYSE: CF) and Mosaic (NYSE: MOS) have watched their shares rise 15% and 22%, respectively.

Corn is an essential feedstock -- used not only for consumption, but for ethanol and animal feed as well -- and has a big effect on how fertilizer companies react. When prices soar, as they are now, farmers tend to plant more of it and that means they need more fertilizer. Those making potash, nitrogen, and phosphate will probably see the results when farmers start planting next year's crop.

PotashCorp reported second-quarter results that beat analyst expectations on revenues, but fell just short on earnings as a result of charges related to an investment in a Chinese fertilizer company. Last year, as commodities soared, fertilizer companies boosted production to capture more profits leading to a surfeit of nitrogen and potash on the market. PotashCorp had been in a weak pricing environment, but that should change for the better going forward.

More than two dozen analysts tracking PotashCorp on CAPS unanimously agree it should be able to beat the market indexes going forward, and with nearly 4,900 members of the investment community weighing in on the fertilizer producer, 97% agree it should beat the Street. Let us know in the comments section below or on the PotashCorp CAPS page how you think the drought will affect pricing, particularly if the markets crumble.

Health care is in bad shape
There's an acute shortage of physicians, and as Obamacare is implemented and tens of millions more Americans are brought into the health care system, the dearth of doctors will be exacerbated. The law is expected to increase the number of primary care physicians by 3,000 over the next decade; 45,000 will be needed.

With a weak economy, high costs of opening and maintaining a practice, and the likelihood that reimbursements will decline, more doctors are joining physician groups, which in turn are being gobbled up by hospital systems in an effort to streamline costs. Obamacare is also speeding up the process of physician group acquisition because there will be greater regulatory impositions when most of the law takes effect in 2014.

With that as the backdrop, it's easier to understand the weak results posted by health care IT specialist Quality Systems, which relies upon large numbers of independent practitioners to buy its software and equipment. Although sales were up 18% over the year ago period, they still missed analyst expectations and profits dropped 18%, also below forecasts. The double miss also included warnings about future trends in the industry. Management remains confident about its prospects (aren't they always?), but "evolving conditions affecting our industry and uncertainty in predicting future results."

Some analysts also fear Quality Systems is losing market share to rival Cerner (Nasdaq: CERN) and athenahealth. The former, which reported its own earnings yesterday that beat expectations, actually caters to hospitals so it would seem to benefit from the trends identified above.

Can Quality Systems beat back the tide? Tell me in the comments box below whether you think it remains a quality investment.

Take a recess
There's another resource besides fertilizer that's put down roots and is expected to grow: It's called gold. Perhaps you've heard of it. The Motley Fool's found a hidden gem of a stock that can allay your fears about inflation while providing nuggets of profit for your portfolio. Download the free report "The Tiny Gold Stock Digging Up Massive Profits" and get the inside scoop before the gold rush hits.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.