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 proved 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 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 like they could do well in any extended downturn.
3-Year Average Revenue Growth
3-Year Average EPS Growth
Gilead Sciences (NAS: GILD)
NetEase.com (NAS: NTES)
Teva Pharmaceuticals (NAS: TEVA)
Source: Motley Fool CAPS screener.
Searching for an answer
The market may be worried about expiring patents for Gilead Sciences, but it has an exciting pipeline of opportunity that ought to dispel the fears. And with shares trading at just 8 times forward earnings estimates, it looks extremely attractive based on its growth prospects.
Atripla and Truvada, Gilead's two big HIV treatments -- accounting for 87% of the biotech's antiviral revenues and three quarters of total sales last quarter -- will see their patents expire in 2021. However, one of the compounds used in these drugs, Viread, expires in 2017. Teva Pharmaceuticals had been pushing against the patents as early as 2008, when it submitted an application to market a generic version of Truvada. It followed that up the following year with one for Atripla and in 2010 did it again for Viread.
Gilead has fought back against Teva's move, as have Bristol-Myers Squibb (NYS: BMY) and Merck (NYS: MRK) , for its attempts to market efavirenz, another compound in Atripla, which they had a hand in developing.
So even though the generic threat is very real, Gilead hasn't sat still. It's looking to market a new HIV cocktail treatment combining Johnson & Johnson's Edurant with Truvada as well as its own new alternative, Quad, which thus far has been found to be no less effective than Atripla.
That could be why, despite the competitive pressure, 97% of the CAPS members rating Gilead think it will beat the broad market averages and why StockDocStan is so confident: "Just wait until the quad pill is approved, and (finally) the other acquisitions start to show a diversifying pipeline!"
Teva's no slouch, either, having made a career at testing the soft underbellies of biotechs and pharmaceuticals and looking for areas it can exploit. The legal arena is part and parcel of its business model. That's why a similar percentage also see it beating the Street. As aviator16 points out, it eyeballs all patent expiry dates, making it a formidable rival: "Generic drug manufacturer stands to profit from aging baby boomers and upcoming 'patent cliff.'"
Away from the rough and tumble of biotechs and their generic usurpers is the equally vicious thunderdome of online gaming. In particular, Chinese gaming houses such as NetEase.com and Shanda Games continue to battle each other in stakes that make the MMORPGs they host look like, well, child's play.
Fears of a government crackdown on the industry hang over companies like a pall, but they've been turning in impressive performances nonetheless. Perfect World (NAS: PWRD) blew away analyst expectations as if it used a chain gun, while NetEase easily slid past forecasts. Even Shanda, which fell after its earnings report, beat Wall Street's prognostications.
With the entire sector offering huge valuation discounts, NetEase rises above the playing field if for no other reason than its dynamic relationship with Activision Blizzard (NAS: ATVI) . But add in self-developed games like Ghost that helped drive online game revenue 14% higher, and it has the power to take on a boss.
Take your turn on the NetEase.com CAPS page, and let us know whether you think it can complete the mission.
Take a recess
Market downdrafts can wreck 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 Fool contributor Rich Duprey holds no position in any company mentioned. The Motley Fool owns shares of Johnson & Johnson, Teva Pharmaceuticals, and Activision Blizzard and has an option sale on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Teva Pharmaceuticals, Gilead Sciences, NetEase.com, and Activision Blizzard, creating a diagonal call position in Johnson & Johnson, and creating a synthetic long position in Activision Blizzard. 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.
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