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Stocks have enjoyed a multi-year bull run, driving the S&P 500 ("S&P") to a new record high in early August. Equity markets have since started to consolidate with a pull back and memories of past capital market turmoil are being rattled awake by market prognosticator warnings of a reset and summer sell-off. Traders have also been alarmed by a technical pattern of closely clustered signals (11 times in 50 trade days) portending a market crash, referred to as the Hindenburg Omen.

Perhaps the markets may just be blowing off excess steam and regrouping before the next leg up. Yet, there are also real fundamental metrics in play with earnings growth headwinds emerging in corporate bottom lines. This quarter's average S&P (NYSEARCA:SPY) earnings increase is only beating estimates by about 1% and the year's EPS growth overall has been rather tepid after the powerful results from financials are netted. Even with the Fed brandishing a heavy hand toward stimulus cuts and signaling hawkish stance on interest rates, stock valuations are undeterred; clinging to silver linings of recoveries in housing and employment, along with economic resiliency.

Should things turn ugly in the markets, then investors who choose to 'hold' and ride out the storm can benefit from knowing where it historically has paid to hide during negative market jolts. Market events coined black swans can wipe out years of positive portfolio gains in a matter of weeks. Looking back at recent periods of severe losses or crashes - 1987, 2001, 2008 - markets were blindsided with a furious collapse. It is not always just the equity asset class that falls victim either, as 2008 savaged almost everything except treasuries and precious metals.

Retail and institutional investors alike should be alert of which stocks have held up admirably in past episodes of market upheaval, offering solid long-term returns from durable business models. We identify stocks with positive stock returns during the most recent economic and market crises of 2001 and 2008. We also take consideration of earnings growth, value, historical returns, industries and yield. That said, the overwhelming focus is on stocks that have survived multiple negative market shocks and kept their heads above water.

THE SURVIVALISTS:

10 Stable Stocks During Market Upheaval & Recessions

2001*

2008*

Est. Fwd 1-Yr

1yr Proj

Stocks

Price Chg

Price Chg

Dividend Yield

P/E

Growth EPS

10yr Avg Return

Flowers Foods (NYSE:FLO)

95%

14%

1.3%

20

14%

21%

Family Dollar Stores (NYSE:FDO)

14%

43%

1.5%

17

10%

8%

Church & Dwight (NYSE:CHD)

26%

10%

1.8%

19

13%

19%

General Mills (NYSE:GIS)

4%

11%

2.9%

16

11%

10%

Hasbro (NASDAQ:HAS)

33%

5%

3.5%

14

11%

11%

Kroger (NYSE:KR)

1%

4%

1.5%

12

11%

10%

Panera Bread (NASDAQ:PNRA)

73%

24%

0.0%

22

15%

15%

Ross Stores (NASDAQ:ROST)

54%

4%

1.0%

15

12%

19%

Spartan Stores (NASDAQ:SPTN)

42%

4%

1.7%

13

7%

21%

Wal-Mart Stores (NYSE:WMT)

8%

18%

2.4%

13

10%

4%

AVERAGE->

35%

14%

1.8%

16

11%

14%

*Stocks with positive price change during the two most recent

financial downturns: 1/01/08-12/31/08 and 3/01/01-11/01/0.

Source: Bloomberg, Thompson Reuters & Morningstar

Insofar as past performance doesn't dictate what the future holds for these stocks, having a fat tailed negative market event as a stress test in two separate occasions does offer insight. For example, many stocks are in industries that are viewed as safe havens during market dislocations, such as household products, food staples, discount stores, etc. Also, many institutional and retail owners are married to these stocks as long-term holdings, recognizing these stalwarts as consistent earners in good and bad times. Another potential factor is the flow of money shifts into stable stock industries during economic declines and market disturbances.

It is no surprise that almost all of the stocks have respectable yields, with an average of 1.8%. For additional income, investors could also consider writing out of money covered calls on the group. After all, the stocks are not lofty high-flyers in ecommerce, technology, biotech or social media, but rather just tried-and-true boring businesses that deliver superior products/services. They are characterized as 'bricks and mortar' stocks that have loyalty in both the consumer and shareholder camps.

Of course not all these stocks are created equal and often experience unique challenges at times. For example, Wal-Mart recently disappointed by lowering FY13 EPS estimates and had same-store sales decline, while Panera Bread's earnings fell short. We know industry and stock diversity can mitigate individual company hiccups along the way, but investors should not blindly hold these stocks without monitoring the companies over time; perhaps, tactically adjusting allocation weighting based on operational performance and outlook.

These stocks are not mired with fast moving money, of the likes of black box trading programs, day traders or activist hedge funds. And there is no hyperbole and certainly nothing sexy about the group. The one-year forward looking P/E is about 16 for the set, which is in line with the S&P (NYSEARCA:IVV) historical P/E average over the past five decades.

They don't have any extraordinary growth potential, nor do they have revolutionary products. Nonetheless, the majority of these stocks have pretty consistent EPS growth histories, with analyst consensus averaging a steady +11% for next year. Yes, maybe Hasbro has a bit of cult movie and toy following at times, but overall these companies operate in staid business lines with a handful having a global footprint, offering international diversity.

Where the rubber meets the road is how these 10 stocks collectively performed during periods of severe market stress. In times marked by fear and panic, these 10 stocks generated positive returns individually, and collectively returned in the worst of times about +35% for 3/01/01-11/01/01 and +14% in 1/01/08-12/31/08. It is noteworthy that inasmuch as a small part of these surprising positive returns during dire times can be company specific and event driven, these stocks weathered two very different storms over a holding period of almost a decade. These stocks have also rewarded long-term investors with 5-year and 10-year average cumulative annual returns of around +15%.

As a secondary smaller group of stocks worth consideration, there are three stocks that perhaps also deserve inclusion into this resilient group. They also collectively fared relatively well under intense market loss volatility and have a solid long-term return profile, decent earnings growth, 2.2% average yield and a fair P/E.

Other Stable Stocks During a Market Upheaval & Recessions

2001**

2008**

Est. Fwd 1-Yr

1yr Proj

Stocks

Price Chg

Price Chg

Dividend Yield

P/E

Growth EPS

10yr Avg Return

Clorox (NYSE:CLX)

16%

2%

3.3%

17

7%

9%

McDonald's (NYSE:MCD)

-6%

-7%

3.2%

16

9%

17%

Southwestern Energy (NYSE:SWN)

-13%

23%

0.0%

17

9%

33%

AVERAGE->

-1%

6%

2.2%

17

8%

20%

**Stocks performed 'relatively well' over the two most recent

financial downturns: 5/1/08- 5/1/09 and 1/1/01-12/31/01

Source: Bloomberg, Thompson Reuters & Morningstar

In closing, it is prudent to acknowledge that 13 stocks would be considered a highly concentrated portfolio and we would suggest that investors keep their individual stock holdings to 20 stocks, at the very least (if not complemented with equity funds).

http://www.mcapitalmgt.com

Source: 10 Stock Winners In A Market Crash

Additional disclosure: Certain clients hold a number of these stocks.