With the Dow breaking back through the 13,000 level, some consider the threat of a recession palpable, so investors would do well to consider the impact an extended downturn could have on their portfolios. It may 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 reported 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 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.
CAPS Rating (out of 5)
3-Year Avg. Beta
3-Year Avg. Revenue Growth
3-Year Avg. EPS Growth
|Intel (NAS: INTC)||*****||1.0||16%||48%||11.6|
|Philip Morris International (NYS: PM)||*****||0.8||55%||15%||17.3|
Source: Motley Fool CAPS Screener.
The long-term view
Regardless of the seeming ubiquity of its processors, Intel left a whole lot of money on the table by ignoring or not properly tending to certain segments of the semiconductor market, essentially ceding ground to its rivals. But that's changing, and the chipmaker is much more aggressively going after rivals on their own turf.
Mobile computing, for example, has primarily been the domain of ARM Holdings (NAS: ARMH) and its legion of chip architecture licensees, whose low-power chips are in most smartphones and tablet computers. Qualcomm (NAS: QCOM) is being driven higher by its ARM-based chip business. But Intel's first foray into the field portends future offerings as well. The first device is an Android-based unit that just hit the market in India and is powered by its Atom Z2460 Medfield chip.
Now Intel is also buying some supercomputing "interconnect technology" from Cray, which was part of the team building a next-gen supercomputer that integrated its Xeon processors. The chipmaker is quickly becoming a much more dynamic organization.
Indeed, CAPS member TopDownTrends thinks Intel has already become a serious contender for ARM Holdings' business.
Everyone is discounting the fact that INTC is late to the party on mobile. Two years ago, they were 20 paces behind ARMH. Today, they are neck and neck with their Medfield offering at 32nm. Say what you will about how ARM chips are inherently more efficient, but the shift to 22nm (2013) and 14nm (2014) will mean that Intel's chips simply cannot be beaten. 2013-14 are Intel's years for the taking in the mobile world.
Can Intel unseat ARM and regain its momentum? Let us know in the comments section below or on the Intel CAPS page and add the stock to your watchlist to be alerted to developments as it chips away at ARM's lead.
Smoke 'em if you got 'em
When gas prices started going through the roof (back in the 1970s -- not a few summers ago) I recall that a gallon of gas and a pack of cigarettes both cost $0.60.
Funny how it's not really so different today. Gas is almost $4 a gallon, and the average pack of Marlboros from top cigarette maker Altria (NYS: MO) goes for $5.73. The difference today is largely due to the government trying to tax tobacco out of existence. Yet it's also challenging Altria to stay competitive against the discount brands from Lorillard and Reynolds American, whose average per-pack cost is about a dollar less.
That's not so much a problem for Philip Morris International, which, because of its global focus, hasn't run into the same level of regressive attacks as U.S. cigarette companies. First-quarter profits surged 13% from the year-ago period as it was able to ship more cigarettes at higher prices. Shipment volumes were up 5.4%, and it was able to maintain or increase its market share, particularly in Japan, where the earthquake and tsunami last year hampered the ability of its Japanese rival to produce cancer sticks.
Even though the global cigarette maker lowered its earnings estimates for the year -- a fact due solely to expected currency-exchange rates -- CAPS member Grandpaj9 still views Philip Morris as a money-printing operation: "PM is, simply stated, a money machine. Unless and until European and other countries adopt America's tobacco relations, PM will sell, sell, sell."
Keep track of its progress by adding Philip Morris to the Fool's portfolio tracker, and then tell us in the comments section below if you think the international outlook for smoking won't get lost in the fog as its American counterpart has.
Take a break
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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 Intel and QUALCOMM. Motley Fool newsletter services have recommended buying shares of Philip Morris International and Intel. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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