With the Dow back above the 11,000 mark but the threat of a double-dip still hanging thick, it would do investors well to 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 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 that 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
Capella Education (NAS: CPLA)
ResMed (NYS: RMD)
Yamana Gold (NYS: AUY)
Source: Motley Fool CAPS Screener.
An education for investors
A Wall Street Journal story yesterday reported that for-profit education centers like Capella Education, DeVry (NYS: DV) , and Corinthian Colleges (NAS: COCO) are suffering from significant declines in enrollment. DeVry saw enrollments plummet 25% even as revenues and profits climbed incrementally.
The Obama administration has attacked for-profit colleges for high default rates on student loans, and while the Education Department watered down a "gainful employment" requirement for schools, postponing the harshest sanctions possible until 2015, the normally non-partisan GAO allowed politics to taint an error-ridden report it issued attacking the schools. Hunkering down, for-profit educators have cut back on aggressively pursuing new students. Capella saw enrollment decline almost 36% in the first quarter.
The breadth of attacks is fairly amazing, but it's also likely to create market overreactions in stocks of schools not tainted by allegations of impropriety. All but one of the 73 CAPS All-Stars rating Capella see it as one of those institutions that will go on to outperform the broad market averages.
Let us know on the Capella Education CAPS page if you think this will be one of those educators going to the head of the class.
I'm personally acquainted with ResMed and its CPAP machines that help alleviate sleep apnea, a medical condition that causes you to stop breathing while you sleep. The ailment leads to a range of health problems from hypertension to charley horses to sharply placed kicks from your bed partner because you snore loudly. As I suffer from apnea myself, I'm rather familiar with its symptoms (and I have the bruises to prove it, too).
Obesity is a leading cause of apnea, and the Centers for Disease Control says one in three U.S. adults (and one in six kids) are obese. While I might wonder about the CDC's alarmist epidemic call (and I'm not obese, I'm just big-boned), the weight trends in this country do point to a favorable environment for ResMed and Respironics, the CPAP device maker unit of Koninklijke Philips Electronics (NYS: PHG) . ResMed also hooked up with CareFusion for a distribution deal of its own ventilation devices.
Highly rated All-Star CAPS member SarahGen points to the rising incidence of sleep apnea as a reason to invest in ResMed, while akakroke highlights its financial condition: "Great management, products, financials in a 20% saturation market. Just bought Irish company with innovative, 'no touch' sleep study machine."
Add the medical device maker to the Fool's free portfolio tracker to see if you'll sleep easy with it as an investment in your portfolio.
Gold's got game
Yesterday's big drop in gold prices notwithstanding, it's hard not to like the long-term prospects of gold miners like Yamana Gold or Barrick Gold (NYS: ABX) . While CAPS member dkruiser50 points out that the miners themselves haven't participated in the meteoric rise of the price of gold, their coming earnings reports will begin to lift them higher.
I think many of the gold mining companies will begin to outperform. Very few if any enjoyed the increase of gold itself. To me, this says when they begin reporting numbers which reflect today's price of gold, the stocks will begin catch-up. Yamana is not the biggest but is yet diversified enough to be comfortable. It is profitable and expanding.
Although Yamana's shares are 20% higher so far this year and 57% higher over the past 12 months, a case can be made that the stock is still offering investors a discount.
More than 3,800 CAPS members have weighed in on Yamana and 96.5% see it going on to beat the broad market averages still. If you're interested in learning whether the gold miner is digging in further, 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 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.
At the time thisarticle was published 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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