5 Stocks for a Championship Defensive Portfolio

The NBA Finals have begun, and already, sports fans everywhere are getting inundated with Lebron/Jordan comparisons, talk of the burgeoning dynastic rivalry between two young powerhouse teams, and of course, the old salt: "Defense wins championships."

Savvy investors have their own form of defense. It's often explained with metrics like low price-to-earnings ratios, sustainable dividend payouts, high gross margins, or other basic assessments of value. But these simple measures might not tell the whole story.

It makes a lot of sense to play a defensive game with your portfolio, with so many grave concerns growing around the world. There are a lot of cheap stocks out there, but if you don't distinguish between those with bright futures and those with one foot in the grave, you could miss the whole point of searching for value. With that in mind, I've put together a quick list of five great stocks that offer the combination of value, sustainability, and potential every investor should want as the bedrock of his or her portfolio. Let's take a look.

Strive for five
My fellow Fools Morgan Housel and Matt Koppenheffer have each offered their take on valuation recently. Morgan prefers enterprise value to unlevered free cash flow. Matt's put forth the idea that total enterprise value over EBITDA is a superior measure.

• Enterprise value is a company's market cap plus its debt, minority interests, and preferred shares, with cash and cash equivalents subtracted.

• Unlevered free cash flow is free cash flow with interest payments added back into the mix.

• EBIDTA is earnings before interest, taxes, depreciation, and amortization.

To add some flavor to this search, I also took a look at free cash flow payout ratios. It's always better to get paid for your perseverance through bad times, and companies that maintain cash in reserve to handle crises should be viewed more favorably. You'll also find that each company's trailing five-year growth rate is notably positive. Past performance doesn't indicate future returns, but you certainly don't want to jump onto a ship already sinking. Here they are:

Sources: Screener.co and Yahoo! Finance.

These are just the basics. Let's dig a little deeper to find out why these stocks might deserve a place in your portfolio.

Digging deeper
China Mobile is frequently brought up when Apple is mentioned, and for good reason. For one thing, it's by far the largest wireless carrier in China, yet few of its subscribers are on a 3G network right now. The two companies are now in talks to bring the iPhone to China Mobile, but the company already does quite well without Apple's help. Fool analyst Andrew Tonner bought shares for his real-money portfolio last month, perhaps lured by its substantial 4% yield and impressive growth rate.

The odds are that you've contributed to Microsoft's bottom line recently. Whether you use a Windows PC, an Xbox 360, a Bing-powered search engine, or even an Android phone, Microsoft's taken its piece. Not all of its ventures are successful -- Bing continues to struggle against mighty Google -- but Microsoft's positioned for a future at the heart of your technology experience. Microsoft throws off cash every quarter, and its 2.7% yield is in no danger.

Accenture's consulting business isn't as well understood as the other companies on this list, but here's one thing that's easy to understand: The company throws off far more in free cash flow than it reports on the bottom line. Both numbers have been going up over the years, helping Accenture boost its payouts quite a bit since it instituted a dividend in 2005. Foolish analyst Anand Chokkavelu is a long-term Accenture bull, and there's good reason for his optimism. Accenture's been the best-performing stock in this batch over the past five years.

If you'd bought American Express in the 1990s and held on, you'd now be far ahead of the S&P 500. This payment processor could easily stand to boost its dividend payout, which it did for its most recent quarter. American Express has been one of superinvestor Warren Buffett's favorite long-term holdings, and it has notably outperformed the Oracle of Omaha's returns in the past decade. On the other hand, it would be more susceptible than the rest to a major credit crunch, so don't dive in without understanding the wider risks.

Corning's been in a bit of a funk as it attempts to transition into away from its old TV-glass bread and butter. Weakness in that segment has dented the company's free cash flow somewhat, but Corning is working hard to come up with better display surfaces. The stock's been popular with both Fool analysts and our avid CAPS players, who've granted the stock a perfect five-star rating. Corning's trading at its lowest valuation in years, so there's a lot of upside if it gets the next generation of glass right.

These stocks should hold value well in any downturn, but they aren't the only options for defensive-minded investors. Check out the Fool's top nine dividend-paying dynamos in our most popular free report on how you can secure your future with the right stocks. Get the information you need to build a championship portfolio, as our gift to you.

At the time thisarticle was published Fool contributorAlex Planesholds no financial position in any company mentioned here. Add him onGoogle+or follow him on Twitter,@TMFBiggles, for more news and insights. The Motley Fool owns shares of China Mobile, Microsoft, and Corning.Motley Fool newsletter serviceshave recommended buying shares of Corning, Accenture, and Microsoft, as well as creating a bull call spread position in Microsoft and writing a covered strangle position in American Express. 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.

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