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3 Lifeboat Stocks

Wed, 08/04/2010 - 12:41 by Brian Orelli

With the market down about 10% over the past three months, and concerns over Europe's debt crisis, China's slowing economy, and the BP spill still in the forefront of news, investors have every right to be concerned. To survive this downturn, you should be asking yourself, "Are my stocks lifeboats, ready to save me, or wreckage sending me to the bottom?

I hope you grabbed a lifeboat
To find lifeboats, I ran a screen on CAPS, the 165,000-investor-strong Fool intelligence database, in search of financially sound companies that pay a hefty dividend.

I used simple criteria for the search:

  • I wanted to consider only stocks that our CAPS community classifies as top-quality. At least 250 active players have picked these businesses, and they all carry four- or five-star rankings out of a possible five.
  • Next, with the credit crunch sinking stocks left and right, I wanted stocks with very little debt. The easiest way to find this is to screen for a debt-to-equity ratio below 0.5.
  • I wanted to consider only businesses with some scale, meaning they have a market cap of at least $500 million.
  • Finally, in these hard times, you could always use some more change in your pocket. As such, I wanted stocks that actively return money to shareholders. I screened for companies with a dividend yield greater than 5%.

I found these lifeboats:

Company

CAPS Rating

Market Cap

Debt-to-Equity Ratio

Dividend Yield (%)

Bristol-Myers Squibb (NYSE:BMY)

****

$43.7 billion

0.4

5.1%

AstraZeneca (NYSE: AZN)

****

$74.6 billion

0.45

6.8%

Royal Dutch Shell (NYSE: RDS-B)

****

$171.1 billion

0.25

6.3%

Source: Motley Fool CAPS.

Big pharma
The major pharmaceutical sector has been beaten down by worries about the unintended consequences of health-care reform and the Patient Protection and Affordable Care Act. With an average P/E of just 10.8, however, the downside is more than factored into the sector's prices. With companies trading at low levels, those with cash might be able to make an acquisition or two.

Pfizer (NYSE: PFE) took advantage of cheap prices last summer with its acquisition of Wyeth, which added $22.5 billion in debt to its balance sheet. Bristol-Meyers and AstraZeneca both have roughly equal amounts of cash and debt. AstraZeneca has the larger cash hoard, with $11.1 billion in cash and short-term investments, and $10.3 billion in debt. Bristol-Meyers has $7.5 billion in cash and short-term investments, and $6.5 billion in debt. Neither is a huge amount, and both companies' dividends should be safe.

Big oil
European oil company Royal Dutch Shell avoided the trouble in the Gulf of Mexico. Indeed, the company's operations are geographically diversified in such places as Russia, Brazil, and the Far East. Compared to oil companies from those locales, Shell is a steal with its 6.3% dividend. Lukoil (Pink Sheets: LUKOY.PK) in Russia, PetroChina (NYSE: PTR) in China, and PetroBrasileiro (NYSE: PBR) in Brazil only yield roughly 3%. Other European oil companies in general are sporting high dividends and look cheap.

© 2010 UCLICK L.L.C

Last edited by Prince damin on Wed, 08/04/2010 - 12:41 | Write to author: Brian Orelli | Bookmark and Share