Investors want safe money more than ever. When markets soar up and down like they are now, safety is the top priority. My readers know how to identify value stocks. But it can take a lot of work; here are two easy ways, and three stocks that make the grade.
First, look for companies whose Enterprise Value is less than their Market Cap. Enterprise Value is Market Cap plus net debt (market cap + total debt - total cash and short-term investments). Enterprise Value can only be less than Market Cap when a company has more cash or liquid assets than debt. That's what you want.
Only a company with net debt can go bankrupt. Any business might fail and close, or be acquired, but only a company with net debt can be shut down by creditors. During tough times, companies must struggle to make debt payments. Low debt adds real safety.
Second, look at how a stock did in 2008. That year was the worst for stocks in modern times. The S&P 500 fell more than 50%. Many lesser stocks fell much more. Any stock which held up during 2008 is likely to be safe. Stocks which actually rose then are likely to be winners.
Just use any free charting service - Big Charts is good - to check a stock's 5-year chart. Did your stock survive 2008? Then it's a keeper.
Now take a look at three stocks which pass the tests:
- Alexion Pharmaceuticals (NASDAQ:ALXN) has a Market Cap of $9.7B and an Enterprise Value of $8.97B. Its Beta is 0.54. Alexion began 2008 at 17.18 and finished the year at 18.07 (adjusted for a 2 for 1 split). It rose 5.2% while the S&P 500 Index fell 37.6%. Alexion develops new pharmaceuticals. So far this year, Alexion is up 30.6%, while the S&P 500 Index is down 6.7%.
- CKX Lands (NYSEMKT:CKX) has a Market Cap of $22.4M and an Enterprise Value of $16.25M. Its Beta is 0.21. CKX began 2008 at 11.60 and finished the year at 13.55. It rose 16.8%, while the S&P 500 Index fell 37.6%. CKX owns and manages land and mineral interests in Louisiana. The company leases its lands for oil and gas exploration, timber, and agriculture. So far this year, CKX is down 5.3%, while the S&P 500 Index is down 6.7%.
- Espey Manufacturing and Electronics (NYSEMKT:ESP) has a Market Cap of $50.26M and an Enterprise Value of $38.61M. Its Beta is 0.39. Espey began 2008 at 19.3 and finished the year at 18.71. This 3% loss beat the S&P 500 Index, which lost 37.6%. Espey makes electronic power supplies and components. So far this year, Espey is up 10.7%, while the S&P 500 Index is down 6.7%.
These stocks, and others like them, can protect investors against market volatility.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.