With the Dow maintaining a level above 13,000 but the threat of a recession still present, it would do investors well to consider the impact a renewed 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 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.
CAPS Rating (out of 5)
3-Year Average Beta
3-Year Average Revenue Growth
3-Year Average EPS Growth
Bio-Reference Labs (NAS: BRLI)
Teva Pharmaceuticals (NAS: TEVA)
Source: Motley Fool CAPS Screener.
The long-term view
Clinical lab testing was a $61 billion business in 2011. While the majority of tests are performed in hospital labs, more than a third of them are contracted out to companies such as Quest Diagnostics (NYS: DGX) and LabCorp, the two largest publicly traded labs, and the rest are performed in a physician's office.
Yet in that niche Bio-Reference Labs successfully competes by mainly focusing its efforts in the New York metropolitan region, though it has a national oncology lab in its GenPath division and a genetics lab that is tops in its field for testing of rare and ultra-rare genetic diseases.
There are a lot of trends that portend even greater growth in the industry, including an aging population, the declining cost of testing, and the development of sophisticated and specialized tests for early detection of disease. That helps explain how Bio-Reference's molecular diagnostic testing volume growth leapt forward 35% last year from the year-ago period.
As a smaller competitor, it has more flexibility that either LabCorp or Quest and can be more responsive to customer needs. Its stock has rebounded from the lows it hit last year after scurrilous claims about its accounting were aired -- shares have essentially doubled from November -- and it's no longer the cheap stock it was, valued at similar levels to its larger rivals. But with analysts anticipating 18% annual earnings growth over the next five years, it could still prove attractive.
That was the reason I chose it to outperform the market on CAPS when its stock tumbled and why I maintain that rating today. Add clinical-testing lab to the Fool's free, personalized stock-tracking service, and tell us on the Bio-Reference Labs CAPS page whether you think it can test higher levels yet.
When you're hot, you're hot
It would seem the biggest lever of future growth Teva Pharmaceutical will lean heavily on is the vaunted patent cliff facing the pharmaceutical industry over the next few years. As a maker of generics, Teva is probably one of the best positioned to capitalize on the approaching deadline.
Generics already account for more than three-quarters of all prescriptions written today, and by 2015, blockbuster drugs with annual sales of $170 billion will go off patent. AstraZeneca (NYS: AZN) just lost a court case to Teva and others when it was decided its patents for antipsychotic drug Seroquel were invalid. The drug generated $5.8 billion for the pharmaceutical last year, and already Teva and Mylan Labs (NYS: MYL) immediately launched generic versions.
As CAPS member JohnCLeven notes:
When a patent falls off the cliff, TEVA is at the bottom waiting to catch it. Great company, good price. Long term hold.
Follow along to see what else falls into its hands by adding Teva Pharmaceuticals to your watchlist.
Take a recess
Market downdrafts can wreak havoc on your portfolio, but there's no reason to hide your money in the mattress. The Motley Fool has uncovered one stock that it thinks will break all the rules to win big in health care. Check out the new special report, "Discover the Next Rule-Breaking Multibagger." You can get free instant access!
At the time thisarticle was published Fool contributorRich Dupreyowns shares of Pfizer and Bio-Reference Laboratories, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Bio-Reference Laboratories.Motley Fool newsletter serviceshave recommended buying shares of Quest Diagnostics and Teva Pharmaceutical Industries. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.