Uncertainty is rampant.
While Wall Street is reeling from subprime bailouts and buyouts, the S&P 500 index is about where it was 10 years ago. The same index is down double digits for the year and more than 20% from its October highs. That drop means it's a bear market.
Is it time to buy? After the last bear market, the S&P went on to almost double in value in the five years between October 2002 and October 2007.
Nobody knows how far and for how much longer the market will fall. Meanwhile, safe money alternatives such as CDs don't pay enough to send our kids to college or for us to retire at a reasonable age. So, what’s the next move?
How about defense? Historically, defensive companies have tended to perform better in a down market because they provide life’s necessities and earn relatively stable returns in both good and bad economies. These companies can not only limit downside risk but also enable us to enter the market cheaply and position ourselves to participate in an eventual market upswing.
A great place to screen for stocks with defensive characteristics is Motley Fool CAPS. We'll start off by looking for stocks that have been rated four and five stars (the maximum number) by the 115,000-member plus CAPS community since these have significantly outperformed the market.
Then we'll add:
Here are a few of the companies I found when I ran this screen:
Company
CAPS rating
Market cap (in billions)
Beta
EPS growth
Return on equity
Sector
Eli Lilly (NYSE: LLY)
****
$52.2
0.39
28.6%
25.8%
Health care
Genetech (NYSE: DNA)
$97.4
(0.77)
37.2%
23.2%
PPL (NYSE: PPL)
$13.8
0.35
22.5%
23.3% Continued...
Tom Hutchinson is a Motley Fool contributor.
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