“Dr. Doom” Roubini Says Recession is a Certainty: Will These Stocks Outperform?

“Dr. Doom” Roubini Says Recession is a Certainty: Will These Stocks Outperform?

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Nouriel Roubini – who correctly predicted the 2008 financial crisis – has no doubt in his mind a double-dip recession is coming, regardless of how the euro zone sovereign debt crisis plays out.

Roubini (pictured above), head of Roubini Global Economics and professor of economics at New York University's Stern School of Business, is a man who seems to have a negative outlook even at the best of times. But this noted economist doesn't feel he is overplaying his doomsday prediction.

"The question is not whether or if there is going to be a double dip, but whether it's going to be mild or severe with another financial crisis," reports Roubini. He says his reading of recent data suggests the US, euro zone and the U.K are already on the verge of falling into a recession in the next quarter or two. (via CNBC)
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

His take on the European sovereign debt crisis is that the European Financial Stability Fund, which provides loans to euro zone members who find themselves in need of economic aid, is not properly funded. The "right thing to do" would be to quadruple its 440 billion euro funds to around 2 trillion euros – enough to help recapitalize the banks.

Do you think Roubini is right? Are you worried about a recession's possible impact on your portfolio?

To help protect you from such a scenario, we looked back in time, and identified a list of stocks that outperformed the market during each of the last three big market downturns over the last decade (between 10/01/2007 – 03/02/2009, 04/19/2010 – 06/28/2010, and 07/18/2011 to the present day). But of course, past performance does not guarantee future performance.

For each stock we'll list the alpha, i.e. outperformance, relative to the S&P500 index, a benchmark for our analysis.

In addition, all of these stocks appear to be more profitable than their competitors (based on profit margins over the trailing twelve months (TTM)). These companies have also seen significant institutional buying during the current quarter.

Considering their track record during market downturns, and their superior profit margins, do you think these stocks are worth a closer look?

Use this list as a starting point for your own analysis.

 

1. PPL Corporation (PPL, Earnings, Analysts, Financials): Generates and sells electricity; and delivers natural gas to approximately 5.3 million utility customers primarily in the northeastern and northwestern US.

Between 10/01/2007 and 03/02/2009: Price changed from $39.81 to $23.25, a price return of -41.6% (alpha of 13.1%). Between 04/19/2010 to 06/28/2010: Price changed from $25.32 to $23.83, a price return of -5.88% (alpha of 4.38%). Between 07/18/2011 and 09/18/2011: Price changed from $27.2 to $28.8, a price return of 5.88% (alpha of 12.73%). [Average Alpha: 10.07%]

Net institutional purchases in the current quarter at 95.0M shares, which represents about 16.45% of the company's float of 577.48M shares. TTM gross margin at 35.55% vs. industry average at 27.31%. TTM operating margin at 27.58% vs. industry average at 18.89%. TTM pretax margin at 17.96% vs. industry average at 14.44%.

 

2. TrustCo Bank Corp. NY (TRST, Earnings, Analysts, Financials): Operates as the holding company for Trustco Bank that provides various banking products and services to individuals, partnerships, and corporations.

Between 10/01/2007 and 03/02/2009: Price changed from $9.25 to $5.08, a price return of -45.08% (alpha of 9.62%). Between 04/19/2010 to 06/28/2010: Price changed from $5.98 to $5.76, a price return of -3.68% (alpha of 6.59%). Between 07/18/2011 and 09/18/2011: Price changed from $4.75 to $4.57, a price return of -3.79% (alpha of 3.06%). [Average Alpha: 6.42%]

Net institutional purchases in the current quarter at 13.5M shares, which represents about 15.04% of the company's float of 89.78M shares. TTM gross margin at 71.5% vs. industry average at 61.37%. TTM operating margin at 41.85% vs. industry average at 32.96%. TTM pretax margin at 25.43% vs. industry average at 14.12%.

 

3. Liberty Property Trust (LRY, Earnings, Analysts, Financials): Liberty Property Trust is a publicly owned real estate investment holding trust. Through its subsidiary, it provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties.

Between 10/01/2007 and 03/02/2009: Price changed from $31.47 to $14.43, a price return of -54.15% (alpha of 0.55%). Between 04/19/2010 to 06/28/2010: Price changed from $30.4 to $28.26, a price return of -7.04% (alpha of 3.23%). Between 07/18/2011 and 09/18/2011: Price changed from $33.15 to $32.51, a price return of -1.93% (alpha of 4.92%). [Average Alpha: 2.9%]

Net institutional purchases in the current quarter at 7.2M shares, which represents about 6.27% of the company's float of 114.84M shares. TTM gross margin at 38.51% vs. industry average at 38.23%. TTM operating margin at 38.51% vs. industry average at 37.36%. TTM pretax margin at 20.22% vs. industry average at 13.75%.

 

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

 

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