Welcome to a New Bear Market: Now What?

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

In case you didn't know it yet: the US is now officially in a bear market! Sure, this isn't very cheerful news, but the technical definition lays to rest the ongoing "are we or aren't we" debate.

The S&P 500 index was down 19.8% on Monday October 3rd from its recent highs. After a sharp drop of 0.82% on Tuesday's opening, the decline exceeded the 20% that technically defines a bear market. Now what?

The official drop to a bear market does not mean it is time to panic. According to Matt Koppenheffer at Motley Fool, some historical perspective should help the nerves: "The last time we were talking about a bear market was just last summer. We didn't hit the "official" level, but between April and July the S&P shed 16%. The rally that followed added 34% back to the S&P index. Even at today's intraday low, the index is still 5% above the summer of 2010 low."

What's more, although "today's macroeconomic forecasts sound positively frightful," it's worth reminding that forecasters are humans, and therefore fallible no matter their combined brain power. That's because experience between market downturns are fundamentally dissimilar. Conventional wisdom and historical evidence can prove downright worthless when the variables aren't identical.

However, this silver lining does not help investors watching their savings gradually disintegrate. So, how can you prepare yourself for more market losses?

For ideas we went back in time, and identified a list of stocks that outperformed the market during each of the last three big market downturns over the last decade (between 10/01/2007 - 03/02/2009, 04/19/2010 - 06/28/2010, and 07/18/2011 to the present day).

For each stock we'll list the alpha, i.e. outperformance, relative to the S&P 500 index, a benchmark for our analysis.

In addition, all of these stocks have seen significant insider buying over the last six months.

Considering the track record of these companies during downturns, and the bullish sentiment expressed by insider executives, are these companies worth a closer look?

Use this list as a starting point for your own analysis.

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1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

1. Ultralife Corp. (ULBI): Ultralife Corporation offers products and services ranging from portable and standby power solutions to communications and electronics systems. Between 10/01/2007 and 03/02/2009: Price changed from $12.56 to $7, a price return of -44.27% (alpha of 10.43%). Between 04/19/2010 to 06/28/2010: Price changed from $4.18 to $4.51, a price return of 7.89% (alpha of 18.16%). Between 07/18/2011 and 09/18/2011: Price changed from $4.73 to $4.95, a price return of 4.65% (alpha of 11.5%). [Average Alpha During Downturns: 13.37%] Over the last six months, insiders were net buyers of 11,415 shares, which represents about 0.1% of the company's 11.20M share float.

2. Republic Services, Inc. (RSG): Provides nonhazardous solid waste collection, transfer, and disposal services in the United States. Between 10/01/2007 and 03/02/2009: Price changed from $30.22 to $17.44, a price return of -42.29% (alpha of 12.41%). Between 04/19/2010 to 06/28/2010: Price changed from $29.32 to $29.9, a price return of 1.98% (alpha of 12.25%). Between 07/18/2011 and 09/18/2011: Price changed from $29.31 to $28.84, a price return of -1.6% (alpha of 5.25%). [Average Alpha During Downturns: 9.97%] Over the last six months, insiders were net buyers of 1,732,695 shares, which represents about 0.55% of the company's 314.31M share float.

3. Seattle Genetics Inc. (SGEN): Focuses on the development and commercialization of monoclonal antibody-based therapies for the treatment of cancer and autoimmune diseases in the United States. Between 10/01/2007 and 03/02/2009: Price changed from $11.81 to $7.51, a price return of -36.41% (alpha of 18.29%). Between 04/19/2010 to 06/28/2010: Price changed from $11.39 to $12.7, a price return of 11.5% (alpha of 21.77%). Between 07/18/2011 and 09/18/2011: Price changed from $17.9 to $18.28, a price return of 2.12% (alpha of 8.97%). [Average Alpha During Downturns: 16.34%] Over the last six months, insiders were net buyers of 1,475,000 shares, which represents about 1.3% of the company's 113.13M share float.

4. Star Gas Partners LP (SGU): Operates as a home heating oil distributor and services provider in the United States. Between 10/01/2007 and 03/02/2009: Price changed from $3.81 to $2.11, a price return of -44.62% (alpha of 10.08%). Between 04/19/2010 to 06/28/2010: Price changed from $3.9 to $4.09, a price return of 4.87% (alpha of 15.14%). Between 07/18/2011 and 09/18/2011: Price changed from $5.01 to $4.98, a price return of -0.6% (alpha of 6.25%). [Average Alpha During Downturns: 10.49%] Over the last six months, insiders were net buyers of 1,200,000 shares, which represents about 2.56% of the company's 46.85M share float.

5. Monmouth Real Estate Investment Corp. (MNR): Monmouth Real Estate Investment Corporation (MREIC) is a real estate investment trust. It owns, manages, and leases properties to investment-grade tenants on long-term leases. Between 10/01/2007 and 03/02/2009: Price changed from $6.1 to $4.03, a price return of -33.93% (alpha of 20.76%). Between 04/19/2010 to 06/28/2010: Price changed from $6.95 to $6.9, a price return of -0.72% (alpha of 9.55%). Between 07/18/2011 and 09/18/2011: Price changed from $8.13 to $8.15, a price return of 0.25% (alpha of 7.1%). [Average Alpha During Downturns: 12.47%] Over the last six months, insiders were net buyers of 38,312 shares, which represents about 0.11% of the company's 34.10M share float.

6. Lions Gate Entertainment Corp. (LGF): Engages in the motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, new channel platforms, and digital distribution activities. Between 10/01/2007 and 03/02/2009: Price changed from $10.45 to $5.02, a price return of -51.96% (alpha of 2.74%). Between 04/19/2010 to 06/28/2010: Price changed from $6.8 to $7.01, a price return of 3.09% (alpha of 13.36%). Between 07/18/2011 and 09/18/2011: Price changed from $6.81 to $7.08, a price return of 3.96% (alpha of 10.82%). [Average Alpha During Downturns: 8.97%] Over the last six months, insiders were net buyers of 919,823 shares, which represents about 5.17% of the company's 17.79M share float.

7. Heartland Financial USA Inc. (HTLF): Provides commercial and retail banking services to businesses and individuals. Between 10/01/2007 and 03/02/2009: Price changed from $20.04 to $9.83, a price return of -50.95% (alpha of 3.75%). Between 04/19/2010 to 06/28/2010: Price changed from $16.18 to $17.29, a price return of 6.86% (alpha of 17.13%). Between 07/18/2011 and 09/18/2011: Price changed from $14.81 to $14.79, a price return of -0.14% (alpha of 6.72%). [Average Alpha During Downturns: 9.2%] Over the last six months, insiders were net buyers of 13,316 shares, which represents about 0.12% of the company's 11.05M share float.

8. Hallmark Financial Services Inc. (HALL): Focuses on marketing, distributing, underwriting, and servicing property/casualty insurance products. Between 10/01/2007 and 03/02/2009: Price changed from $14.62 to $6.84, a price return of -53.21% (alpha of 1.48%). Between 04/19/2010 to 06/28/2010: Price changed from $11 to $10.94, a price return of -0.55% (alpha of 9.72%). Between 07/18/2011 and 09/18/2011: Price changed from $7.39 to $7.16, a price return of -3.11% (alpha of 3.74%). [Average Alpha During Downturns: 4.98%] Over the last six months, insiders were net buyers of 173,331 shares, which represents about 1.55% of the company's 11.18M share float.

9. W. P. Carey & Co. LLC (WPC): Provides long-term sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. Between 10/01/2007 and 03/02/2009: Price changed from $24.29 to $14.67, a price return of -39.6% (alpha of 15.09%). Between 04/19/2010 to 06/28/2010: Price changed from $28.22 to $26.19, a price return of -7.19% (alpha of 3.07%). Between 07/18/2011 and 09/18/2011: Price changed from $40.28 to $38.87, a price return of -3.5% (alpha of 3.35%). [Average Alpha During Downturns: 7.17%] Over the last six months, insiders were net buyers of 58,204 shares, which represents about 0.22% of the company's 26.89M share float.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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