David Trainer
David Trainer is CEO of New Constructs LLC, an analytics firm that provides stock research to financial advisers and money managers, Nashville. NewConstructs.com
The dismal performance of the stock market early this year has caused some analysts to predict the end of the seven-year-old bull market. Even if you believe that we are headed for a prolonged downturn, it doesn’t mean that you have to abandon stocks. But you might want to make sure that at least some stocks in your portfolio are sturdy enough to withstand a bear market.
What to do: Invest in stocks of large blue-chip companies with the following characteristics and the ability to rebound quickly…
Strong free-cash flow. This is essentially the amount of money that a company has left over after it pays its bills. It provides flexibility for management to support its business and reward shareholders.
High return on invested capital (ROIC). This shows how much cash a company generates from money it reinvests in its business. A consistently high ROIC tells investors that the company has been able to compound its value and grow despite any challenges it faces.
Stocks that meet these criteria now…
Colgate-Palmolive (CL). The price fell just 24% in the 2007–2009 bear market, and it completely recovered by June 2009, compared with a 57% drop for the Standard & Poor’s 500 stock index, which took until March 2013 to recover. Recent share price: $69.91.
The Hershey Company (HSY). The confectionary giant’s stock fell 33% in the bear market and recovered by March 2010. Recent share price:
$90.32.
The Travelers Companies (TRV), one of the largest US insurers, fell 37% in the bear market and recovered by October 2009. Recent share price: $116.25.
