With the Dow just above the 12,500 mark again, investors are optimistic. But with the threat of Europe still palpable, it would do investors well to consider the impact a renewed economic 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 not overly high -- 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-Yr Avg. Beta
3-Yr Avg. Rev. Growth
3-Yr. Avg. EPS Growth
MetroPCS (NYS: PCS)
Shaw Communications (NYS: SJR)
Source: Motley Fool CAPS Screener.
The long-term view
Low-cost mobile phone service provider MetroPCS missed analyst targets for customer acquisition, but growth was still up year over year. And while its churn rate inched higher, it was still below what Wall Street was expecting. In short, fewer customers signed up, they turned over slightly more than they had previously, but it wasn't as bad as everyone was expecting. Pretty much a mixed bag.
Of course, holding back MetroPCS is its outdated 3G CDMA network. Having been the first to deploy 4G LTE in 2010, it held bragging rights for all of about five minutes as Verizon (NYS: VZ) followed its lead and has since gone out to roll out the next-generation network to 190 markets. Later this year, MetroPCS will broaden its 4G effort, but it will need to find some way to combat the availability of cheap prepaid plans. Maybe its mobile TV effort will be the key.
Relief for investors, who have suffered a 35% drop in value over the past year (and down by more than half from its highs), may come from AT&T (NYS: T) , which gave up its pursuit of a T-Mobile merger. With AT&T still in need of bandwidth, MetroPCS may provide the perfect avenue to grab that.
I am a fan of acquisition targets in any space, and this firm is definitely a takeover target. At present valuation, the company is very cheap. It's assets are also increasing in value with each day as more customers join this tiny player. People miss the beauty in firms like this. When the economy performs poorly, consumers switch to prepaid cellular devices. However, when the economy strengthens, those who couldn't afford a phone at all also go to prepaid services.
Add the wireless carrier to your watchlist and tell us on the MetroPCS CAPS page if you think it can dial up new growth going forward.
Calling up growth
Canadian communications and media company Shaw Communications did better with its customer acquisition than MetroPCS, adding more to its digital TV and phone business as well as its Internet services, but losing a few from basic cable. Although it came in just short of revenue expectations, profits just beat out estimates. Regardless, sales were up 20% year over year, and earnings exceeded last year's effort by a factor of 10.
Some investors might be drawn to Shaw's rival Telus, since, in addition to the TV and Internet services, it also offers a wireless service. Shaw shelved its plans to unveil a similar service last year, but competition has been increasing on that front, with efforts by Rogers Communications and BCE (NYS: BCE) promising to keep margins thin. Shaw may prove to be the smartest player by avoiding the cutthroat arena.
That could be why 93% of the CAPS members rating Shaw see it being able to beat the market. Follow along to see whether the communications maven can dial up additional opportunities to hook up more customers by adding Shaw Communications to your watchlist.
Take a recess
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At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Rogers Communications. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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