Stocks are cheap. But with the economy in recession, we concentrate on household names that will hold up no matter how bad things get. By David Landis, Contributing Editor December 31, 2008 General Dynamics (symbol GD)Because it gets about two-thirds of its revenues from Uncle Sam, General Dynamics should hold up well in a recession. The world's sixth-largest defense contractor makes everything from tanks and submarines to electronics for intelligence services. For its July–September quarter, GD's backlog of business was $60.5 billion, up from $55 billion the previous quarter. Better yet, profit margins rose in each of GD's four business segments. RELATED LINKS 2009 Market Outlook A Wise Investment Plan 5 Stocks With Super Yields GD also owns Gulfstream, a maker of high-end business jets, which accounts for about 18% of its revenues. This business could dip in the short term as corporate budgets tighten, but demand remains strong from oil-rich Persian Gulf states. The stock trades at just nine times expected 2009 profits of $6.71 per share and yields 2.3% (all prices and related data are as of the close on November 7). Johnson & Johnson (JNJ) Advertisement Johnson & Johnson is the right pick for the times. No matter how bad things get, people will still buy household essentials, such as Band-Aids and Rolaids. The shares, at 13 times estimated 2009 earnings of $4.68 per share, are cheaper than they might otherwise be because of concerns about J&J's larger divisions: pharmaceuticals (40% of revenues) and medical devices (33%). Several drugs are about to lose patent protection. J&J also faces fierce competition in the market for drug-coated stents, which are used to prop open diseased arteries. The firm's pipeline of new products is robust and contains several potential blockbusters. Meanwhile, J&J is using its financial might to reward shareholders. It is buying back $10 billion worth of stock and paying a $1.84 annual dividend. The stock yields 3.1%. Automatic Date Processing (ADP) Even though jobs are disappearing, the business of processing corporate payrolls remains a good one. ADP boasts long-term contracts and high repeat business, and it gets to keep the interest it earns on billions of dollars in taxes deducted from paychecks that are later turned over to the government. This profitable business model generates a lot of cash. Advertisement Analysts are forecasting below-average growth for ADP in 2009 as companies cut back on hiring. Lower interest rates also mean less float on the money ADP holds for clients. But these short-term issues mean investors can buy into a top-flight business at a price just above its five-year low. The stock trades for 15 times expected earnings of $2.39 a share for the year that ends this June. The $1.16 annual dividend translates into a 3.3% yield. American Tower (AMT) Fierce competition means that wireless-phone carriers will continue building their networks in any economic environment. That's good news for American Tower, which owns or operates more than 23,000 wireless-phone and broadcast-communications towers. Major carriers, such as AT&T and Verizon, are willing to sign long-term contracts with built-in annual price increases to lease space on these towers so that they can provide voice and data services for their customers. Morningstar analyst Imari Love estimates that American Tower has more than six years' worth of revenues already locked in to these noncancellable contracts. The shares are not cheap by most measures. Still, American Tower's locked-in revenues, financial strength and expansion opportunities in Mexico, Brazil and India make this stock appealing. Advertisement Oracle (ORCL) The company is the leading provider of database software, an essential underpinning for virtually every type of corporate software application. Oracle's 43% market share is more than twice that of IBM, its nearest competitor. Working from that stronghold, Oracle spent $28 billion over the past four years to acquire companies in enterprise software, programs that support or streamline business operations. Offering all-in-one bundles of software tailored to a particular company or industry has proved to be an effective and profitable strategy. That's because the cost of switching to a different software provider is prohibitively high. Global economic headwinds could drastically reduce corporate appetites for new software projects. But Oracle gets nearly half its revenues from highly profitable maintenance contracts, which continue paying off regardless of the economic climate. The company recently announced an $8-billion share-buyback program. The stock trades for a reasonable ten times projected earnings of $1.68 per share for the fiscal year that ends May 2010. Advertisement Google (GOOG) Once everybody's favorite glamour stock, Google is now available at half price. That looks like a pretty good deal. Down from $742 in late 2007, shares of the leading Internet-search and advertising firm trade at just 15 times expected 2009 earnings of $22.67 per share. Granted, advertising budgets will likely shrink in a tough economic climate. But targeted Internet advertising, for which effectiveness is easy to measure, may not suffer as much as the more scattershot types of advertising, such as TV commercials. In addition, Google's management has shown increasing willingness lately to rein in employee expenses and capital expenditures to boost profitability. Google's days of off-the-charts performance (revenues have risen at an annualized rate of 140% since 2001) may be over, but the company's competitive advantages remain in place. It has a 69% share of the global Internet-search market. It also has $14 billion in cash, no debt and healthy free cash flow. Analysts expect better than 20% annual profit growth over the next three to five years. What's not to like? Accenture (ACN) Although Accenture is not immune to a recession, it should survive relatively unscathed. The company, which is based in Bermuda, provides management- and technology-consulting services to businesses and governments around the world. Plus, it provides services, such as computer-network management and customer help desks, that businesses prefer to farm out. New bookings, a measure of future business, hit an all-time high for the quarter and the fiscal year that ended last August. Although pinched companies and governments could cut back on consulting, which accounts for 60% of Accenture's revenues, a majority of the firm's new bookings for the quarter were for the growing outsourcing business, which should prove more resilient in a downturn. Accenture's strong balance sheet—it has $3.6 billion in cash and generates nearly $3 billion in free cash flow annually—wide customer base and relatively predictable business should appeal to risk-averse investors. The shares trade at 11 times expected profits of $2.87 a share for the August 2009 fiscal year. Thermo Fisher Scientific (TMO) This is a one-stop shop that equips research laboratories with everything from high-end analytical instruments to everyday supplies, such as chemicals and microscope slides. The company derives about half of its annual revenues from lab supplies that need to be restocked—a steady business that's not particularly economically sensitive. That should cushion any drop-off from sales of costlier scientific instruments (31% of revenues). Customers range from pharmaceutical firms and hospitals to research labs and government agencies. (Other revenues come from sales of software and services.) Thermo can throw a lot of weight around in a fragmented industry. It has a leading market share in each of its product categories and enough financial strength to bolster results by acquiring rival firms. Analysts foresee 10% or better earnings growth in 2009 and beyond. Even if that's overly optimistic in the short term, there's little doubt that expansion into Asia will fuel long-term growth. The stock trades for 11 times expected 2009 profits of $3.48 per share.