With the Dow hovering around the 13,000 mark again, but the threat of a recession still present, investors would do 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 that 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 giving 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-Year Average Beta
3-Year Average Revenue Growth
3-Year Average EPS Growth
|Lorillard (NYS: LO)||****||0.4||15%||16%||16.4|
|Richmont Mines (ASE: RIC)||****||0.6||27%||210%||13.0|
Source: Motley Fool CAPS Screener.
The long-term view
Despite vilification by the government and consumer advocates, cigarette makers have a long history of being go-to stocks in hard times. Along with fellow "sin stocks" like brewers and distillers, cigarette companies have been consistent performers. The latest attempt to stamp out smoking -- putting graphic images on cigarette packs -- has also failed, at least for the moment.
After a constitutional challenge to the regulations by Lorillard and Reynolds American (NYS: RAI) , a judge ruled it violates their free speech rights because it expropriated the companies' resources for government advocacy purposes by having the graphic images larger than even the companies' own branding.
Lorillard is enjoying double-digit growth in operating income and pays a quarterly dividend of $1.55 that's currently yielding 4.8%. That's less than either Reynolds or Altria, but healthy and steady nonetheless. In fact, it just raised the dividend 19% after reporting smokin' good results.
CAPS member joereto says that even if the U.S. continues its animus against cigarette makers, Lorillard will still prosper because much of the rest of the world doesn't hold such a grudge: "China, Russia, Brazil and the rest of the 'smoking nations' will continue making Lorillard profitable to the max. It will easily outrun the S&P 500."
Add Lorillard to the Fool's free, personalized stock-tracking service and tell us on the Lorillard CAPS page whether you think the government's assault will serve as a drag on performance over the long haul.
Digging up buried treasure
Canadian junior gold miner Richmont Mines reported quarterly results that saw higher gold prices realized -- around $1,716 an ounce compared with $1,359 an ounce a year ago -- and bigger sales volume to boot. At $882 an ounce, Richmont still has high cash costs, and it expects them to remain elevated as the company pursues methods of extracting gold more efficiently, but they were down slightly sequentially, even if they were up year over year. It was able to mine gold more efficiently at its Beaufor Mine, generating lower exploration costs.
Now Richmont probably won't get anywhere near the cash costs of Goldcorp (NYS: GG) , which are expected to remain below $400 an ounce for the next five years, or Yamana Gold's (NYS: AUY) by-product cash cost of an anticipated $250 per ounce of gold equivalent this year. But Richmont is heading in the right direction.
Investors got spooked the other day when the company announced its president was resigning, but since that won't be happening until August, it amounts to an orderly transition and not some sudden event taking place immediately.
CAPS member srgolfer1 has said that so long as Richmont can continue decreasing its costs, investors should come out ahead: "Once they bring their expenses down, this should continue to grow with the help of the high price of gold currently."
Follow along to see whether the gold miner can keep its costs down by adding it to your watchlist and be alerted to any additional developments on the management front.
Take a recess
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Altria Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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