With the outlook for the U.S. economy in question for the rest of the year, this is a bad time to pursue high-priced growth stocks. Any hit to growth forecasts can lead to a double hit from both lowered
profit forecasts and a lower target multiple on those profits. Instead, your eyes should be trained on the opposite end of the market, where low-priced stocks -- matched with steady stable businesses -- can provide a safe haven in the current storm.
Sure, these stocks have taken a hit, which is why they are now low-priced. But if you find them with low-enough profit multiples and proven, profitable business models, then you'll sleep much better at night and still be exposed to considerable upside when the market finally finds its footing.
With that in mind, I scoured the S&P 500 for the cheapest stocks out there (those with forward (2012) P/E multiples below eight). I tossed out all banking stocks (because who knows what the banking landscape would look like in a recession) and limited the list to companies that have never reported an operating loss in the past three years. If these companies could generate positive operating profits during the downturn of 2008-2009, then they're battle-tested for any challenges that may come in the next year as well.
There are some familiar names on the list. I've recently suggested RadioShack (NYSE: RSH), which is consistently profitable in good times and bad, deserves a fresh look. The retailer recently joined forces with wireless service provide Verizon (NYSE: VZ), which should give sales and cash flow a solid boost. Yet since the news was released, shares have been pummeled anew in this brutal market.