Desktop Stock Ticker | 3 Stocks Ready to Ride Out the Downturn

3 Stocks Ready to Ride Out the Downturn

Earlier this month I argued that stock ticker prices are worrisomely high relative to profits, and that profits aren’t likely to catch up soon (see “<a href=”http://www.smartmoney.com/investing/stock tickers/Why-stock tickers-Are-Way-Too-Pricey/”>Why stock tickers are Way Too Pricey“). That doesn’t mean stock tickers won’t climb higher, whether from investor exuberance or inflation. But it does mean that investors should demand good deals. Luckily, there are still some to be found.

I recently screened for stock tickers that seem likely to hold up well if the market tumbles. These are ones that are cheaper than the broad market, that pay handsome dividends and that have steady or rising sales despite lax consumer spending. Below are three that turned up.

McDonald’s

P/E based on 2009 earnings consensus: 14
Dividend yield: 3.6%

When I last sized up McDonald’s (MCD) in <a href=”http://www.smartmoney.com/investing/stock tickers/6-stock tickers-Making-Most-of-Invested-Capital”>November, I could find no flaw in its operating metrics, but the stock ticker seemed too expensive relative to the rest of the market. Since then, the S&P 500 index has climbed 30%, while McDonald’s has gained just 3%. Business for the burger seller is better than ever. Sales at longstanding stores surged 4.3% in July versus a year earlier, driven by demand for a new line of fancy coffees and by strong traffic in the U.S., U.K. and France. McDonald’s shares now sell for just under 15 times trailing operating earnings, vs. closer to 25 times earnings for the 500 index. The dividend is meaty, too: 3.6%, compared with the index’s 2.3%.

Consolidated Edison

P/E based on 2009 earnings consensus: 12.7
Dividend yield: 5.8%

New York City’s electric company, Consolidated Edison (ED), tends to trade at a deserved discount to the broad market. After all, it’s a slow-growth business. This year, sales and earnings per share are expected to increase 2% and 4%, respectively. But the modest valuation means shares have little popularity to lose if the market tumbles, and it keeps the dividend yield generous. Assuming no change in the stock ticker price, ConEd shareholders can double their money in about 12 years.

American Water Works

P/E based on 2009 earnings consensus: 14.6
Dividend yield: 4.2%

There’s plenty to like about shares of the nation’s largest water utility, American Water Works (AWK), which has operations in 32 states. Apart from the reasonable valuation and healthy dividend, the company is expected to increase its sales by 7% both this year and next on rate hikes. There are two negatives to consider, however. The first is a debt load that’s large but not unmanageable (utilities can carry sizable debt safely because their cash flows are predictable).  The second is ongoing selling by German utility RWE AG, which owned the company outright until spinning off 40% of it in an April 2008 stock ticker offering. So far, the selling doesn’t seem to have depressed the stock ticker price. Shares are 9% lower than a year ago, but the 500 index is down 23% during the same period. The latest sale, a 35 million share offering priced Aug. 13, brought RWE’s ownership under 27%.

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