With the Dow back above the 11,000 mark for the time being, but the threat of a double-dip recession still palpable, 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 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 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-Year Average Beta
3-Year Average Revenue Growth
3-Year Average EPS Growth
|American Public Education (NAS: APEI)||****||0.7||30%||27%||17.8|
|Express Scripts (NAS: ESRX)||****||1.0||31%||18%||16.2|
|Life Technologies (NAS: LIFE)||****||0.8||34%||38%||19.6|
Source: Motley Fool CAPS screener.
Don't bother telling it to the Marines. In a move designed to ostensibly save costs, the Marine Corps just cut educational assistance to military personnel by 22%.
This past August I highlighted how the amount of money for-profit colleges can accept from federal Title IV programs is limited to 90% of their revenues, but since Defense Department tuition assistance isn't included in the total, for-profit colleges like Bridgepoint Education (NYS: BPI) seek out members of the military to enroll in their courses.
Bridgepoint and American Public Education are the two educators most exposed to the program cuts, the latter of which receives about half its revenues from the program. But Apollo Group has been actively pursuing military students, too.
APE's stock did fall the other day, but it might be an overreaction. As the field has gotten more crowded, it has gone after more Title IV funds for itself and expects the number of its students qualifying for Department of Defense tuition assistance to shrink over time. For American Public Education, the cuts might not be as bad as feared.
That could be why 97% of the CAPS All-Stars rendering an opinion about APE think it will still go on to outperform the broad market averages. Add American Public Education to your Watchlist and see whether it ends up graduating to the next grade.
Take two aspirin
It's going to get a lot of scrutiny, but if the proposed merger between Express Scripts and Medco Health Solutions (NYS: MHS) gets regulatory approval, the combined company will be a formidable industry rival.
While it's been described as "the most obviously beneficial merger ever," it still won't be easy. The FTC is looking at the deal, a second congressional committee has opened up a review, and a number of states are looking at the proposed $29 billion acquisition. Opposition lined up swiftly against the pairing, with the chain drugstore trade group leading the charge. Walgreen (NYS: WAG) , which is represented by the trade group, is involved in a dispute with the pharmacy-benefits manager over providing prescriptions for its customers. The two have been unable to reach a mutually agreeable deal and plan to sever their relationship by year's end if they can't come together.
CAPS member StockDocStan thinks Express Scripts will still be standing tall even if the deal falls through: "With or without Medco, Express Scripts will be a long-term winner, and I don't see how that has been less than obvious lately for the market."
You can tell us on the Express Scripts CAPS page or in the comments section below if you think the forces arrayed against it are too powerful to overcome, and then follow the buyout bids by adding it to your Watchlist.
Can't touch this!
The market for genetic analysis technology hasn't gained the traction the market anticipated, and when Illumina (NAS: ILMN) reported that research funding wasn't going to be as robust as previously thought, it sent shares of industry peers like DNA-sequencing specialist Life Technologies and Thermo Fisher Scientific careening lower.
Life Technologies had actually signaled the softer market back in July, when it reported second-quarter earnings that fell below last year's effort and missed analyst expectations. Like Illumina, it found academic and government-funded research lacking because of budget constraints. Perhaps the market shouldn't have been so surprised by Illumina's announcement.
Having gotten the news out first, though, Life Technologies might be better off than its peers. It doesn't expect the funding issue to worsen for the year, and it's accelerated cost-saving programs that should have it looking better next year.
With 94% of the CAPS members rating the life-sciences leader to outperform the market indexes, it seems they're expecting it to get better, too. You can tell us on the Life Technologies CAPS page or in the comments section below if you agree, and then follow the research funding story by adding it to the Fool's portfolio tracker.
Take a recess
Market downdrafts can wreck havoc on your portfolio, but there's no reason to hide your money under 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 this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of American Public Education and Bridgepoint Education. Motley Fool newsletter services have recommended buying shares of Thermo Fisher Scientific, Illumina, and MedcoHealth Solutions and writing puts in Bridgepoint Education. 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.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.