With the Dow below the 12,000 mark and the markets officially in "correction" territory, investors should consider the impact a renewed recession might have on their portfolios. It might be tempting to move to an all-cash position, but before you make such a hasty switch, 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.
3-Yr Avg. Rev. Growth
3-Yr. Avg. EPS Growth
MetroPCS (NYS: PCS)
Newmont Mining (NYS: NEM)
Triangle Capital (NAS: TCAP)
Source: Motley Fool CAPS Screener.
Searching for an answer
To paraphrase Benjamin Franklin, MetroPCS is a keg tapped at two ends, with Boost Mobile eating away at its budget consumer base and AT&T (NYS: T) and Verizon (NYS: VZ) siphoning off high-end customers who want the iPhone.
MetroPCS's middle-of-the-road policy of discounted unlimited talk, text, and web also occupies the spot where most unwary critters get run over. And the roadkill is piling up, with the similarly situated Leap Wireless falling in a heap as its broadband customers disconnected and losses more than tripled.
Yet I believe MetroPCS will once again enjoy the growth it did before the second quarter hit. While it blamed the economy for its woes -- a bit incongruous, considering that tough times should make its service a better value proposition -- I think the worsening credit, job, and market situation will force consumers to trade down from their high-priced AT&T and Verizon plans.
Moreover, with the major carriers eliminating their unlimited plans in favor of tiered pricing, and "throttling" traffic through their networks, MetroPCS's wide-open 4G LTE network should look awfully good to consumers.
CAPS member mpd8822 says the wireless operator got caught up in the market downdraft, but will benefit as more consumers see the value in the budget telecom:
Good jump in price due to panic and overselling. The company has performed well for quite a number of quarters and should be able realign under the increased pressure from the economy and economy.
Let us know on the MetroPCS CAPS page whether you think this stock will hit the growth fast lane again.
Mining an opportunity
The financiers at JPMorgan Chase say that no one in government today has the aptitude to make the tough choices necessary to bring our country back from the deficit brink. If they're right, the run-up we've seen in gold is not over yet, and more people will fly to its safety.
Newmont Mining missed earnings expectations, as higher costs for labor, energy, and raw materials caused its cash costs per ounce to rise. It's not alone, either. Goldcorp (NYS: GG) also is feeling the pinch of higher cash costs. Only Barrick Gold (NYS: ABX) has posted falling cash costs, keeping it a premier low-cost senior miner.
Newmont will still benefit if JPMorgan's scenario plays out as expected. So will investors, considering the gold miner is pegging its new, higher dividend to the price of gold. As the value of the precious metal rises, so will Newmont's dividend. (That said, it'll also fall if gold heads in the opposite direction). At Friday's $1,659 price, the dividend would be $0.30 per share; at the record high price this morning of more than $1,700 an ounce (soaring on the debt downgrade), the dividend jumps to $0.35.
CAPS member kurtdabear said investors can pretty much assume they'll be getting higher dividends:
[Newmont] is one of the big blue chips of gold mining, and when the main stream market decides it's time to buy gold, [it] will be one of the primary beneficiaries. [Newmont] is interesting because they've linked their dividend rate to the price of gold, so a near-term dividend increase is pretty well baked into the stock.
Add the gold miner to the Fool's free portfolio tracker to follow how well investors prosper alongside it.
Ensuring a profitable outcome
During the recession -- the first dip, not the double dip we might be heading into -- private equity investing all but dried up as capital to put to work became scarce. Yet as we came out of the dark valley, public companies weren't the only ones building up their cash balances. Private equities also started putting their money to work, and M&A got very hot in the apparent recovery that followed.
Business development company Triangle Capital has done well by any standard, posting four straight quarters of positive earnings surprises. In the last quarter, it saw total investment income soar 66% year over year.
This BDC is flying under the radar of Wall Street and Main Street, but the half-dozen CAPS All-Stars who've rated it think it will outperform the market. All but one of the nearly two dozen CAPS members weighing in agree. If you're interested in learning whether Triangle Capital sits squarely in the growth quadrant, add the stock to your watchlist to get all the Foolish news and analysis about it.
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 could have the goods to keep your portfolio on the upswing. 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.
At the time thisarticle was published The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of AT&T. 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.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.
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