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It seems as though the economy is getting bleaker every day. Good news seems to be nowhere in sight. Most of the important earnings have passed so we cannot rely on corporate earnings to provide the good news.

This debt ceiling debate will ultimately hurt the economy because of the cuts in spending. Moody's and S&P are threatening to downgrade the US's credit rating, consumer spending is down for the first time in 20 months, unemployment is above 9%, housing is still in the depths, and the GDP came in at only 1.3%. The list goes on and on, while there is virtually no good news to be found.

Investors are starting to panic that we will be slipping into a recession. Many economists have said that we could easily slip into a recession by the year's end, simply because the growth and stimulation isn't there. Economic support from the government has been maxed out; the government simply can't afford to keep stimulating the economy with tax cuts and spending increases. That is part of the reason our debt is so outrageous and our AAA rating is at risk.

As I said earlier, the GDP came in at 1.3%, under economists consensus. This is the most worrisome because the GDP is the primary indicator we use to determine the health of our economy. This kind of mediocre growth can't be sustained and it almost seems likely that we will slip into a recession. The spending cuts were only announced two days ago and it'll be a while before we see the true effect the cuts have on the economy.

All this doubt and worry makes me want to take a more defensive approach with conservative stocks such as Procter & Gamble (PG), Campbell Soup (CPB), and General Mills (GIS).

PG is a distributor of packaged goods. The company's products range from Old Spice and Olay to Pringles. This company is very attractive in a downturn because it provides many necessities that can be found at most retailers. Valuation-wise, the stock claims a cheap P/E of 16. Price to sales and price to book are a little on the higher side but not too bad. Cash flows are pretty healthy and debt is controllable. Best of all, PG has a 3.45 dividend yield. This stock is the perfect defensive stock that has a great yield.

CPB manufactures food products in the US and worldwide. Even when times are tough, people still have to eat. The difference is they aren't going to be spending a large amount of money in the process. That is where Campbell comes in, with its very cheaply priced soups offering great taste. Campbell flourishes whether the economy is good or bad. However, Campbell makes a lot of money during a downtrend. According to the valuations, CPB is cheap. The stock has a low P/E of 13, P/S is around normal, cash flow is very strong compared to its peers and the company has a nice dividend yield of 3.56. On the bad side, the company has a bunch of debt but that's offset with a ROE of 75, above its five-year average. CPB is a great recessionary food play that will not only save you money on food but will also give you some security.

GIS is the large manufacturer of food products in the US and world whose best-known product is its cereals. General Mills is another recessionary food play because of its low-priced foods. Similarly with Campbells, people are not going to be forking over a lot of money for food. They are going to slow eating out and they are going to eat inexpensive meals at home. Sometimes, that meal is going to be cereal. Let's see how GIS stacks up valuation-wise: P/E is cheap at 13, price to book and price to sales are normal. The company, like the others in this article, has a nice dividend yield of 3.34.

If I wanted to go deeper and use a more "counteroffensive" approach, I would want to short high-flying, overvalued companies that would certainly get hit during a recession. Some possible candidates could be Pandora (P), LinkedIn (LNKD), Ancestry.com (ACOM).

Pandora is an internet radio company. Pandora has not profit to speak of, yet when its IPO came out the stock skyrocketed past its IPO initial price to $26. The little internet company has poor valuations and poor future prospects. Watch for this stock to dive if a downturn is coming.

LinkedIn is another internet company that focuses on networking. Although networking is very important in the job world, especially business, the company is barely profitable. Yet when its IPO opened, the stock skyrocketed to $122. The stock is ridiculously overvalued with a P/E of 2792. This company has a good idea, and is potentially highly profitable considering this job market, but it is priced way too high. This stock should not be priced so high. It could be a good buy if it comes down in price. For now, we are going to avoid this stock and watch to see if a short play comes together.

Ancestry.com's an online company that allows you to research your family tree. I must admit this site looks pretty cool; it would be nice to learn more about my family's history. That being said, this company will not be able to sustain growth and profitability if a recession comes. People who are financially under pressure are not going to be spending money to learn about their family trees. It is an unnecessary expenditure during a recession. Look for profits to decline if the worst should happen.

These stocks are part of the new internet phenomenon. They have little to no profitability to speak of, yet their IPOs skyrocketed and valuations were way overvalued (which kind of reminds me of the internet bubble back in 2000). Barron's recent articles from late July have said these internet stocks are overvalued and a bubble. Look for a recession to be a catalyst for the bubble to pop or at least let some air out.

Source: 6 Names for a Possible Recession