Stocks That Are Prospering in this Volatile Market Year
Andrew Leckey

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Not all stocks perform poorly during a tough year for the market. Some that you might consider yawners in more robust times actually hang in there and prosper.

For example, stock for the global health and hygiene company Kimberly-Clark Corp. (KMB) and the Georgia-based electric utility Southern Co. (SO) have each posted price gains in the mid-teens in 2011.

Their success flies in the face of a brutal market.

The overall decline in the third quarter was 12 percent for the Dow Jones industrial average, 14 percent for Standard & Poor's 500 and 13 percent for the Nasdaq Composite. It is no surprise that utilities and consumer staples -- traditional defensive sectors -- declined the least and produced some winners.

"The good thing about this volatile market is that the financials have borne the brunt of the selling," said Alec Young, global equity strategist for S&P Capital IQ in New York. "Defensive sectors such as consumer staples, utilities, health care and telecom have done much better."

The winning formula for a 2011 personal portfolio has been to underweight financials while overweighting defensive sectors. Sidestep financial stocks and you are likely to beat the market, Young counseled.

Kimberly-Clark, known for its famous consumer brands such as Kleenex, Scott, Huggies, Pull-Ups and Kotex, is constantly working to improve its products with new features. It generates nearly half of its sales outside North America, with many overseas products positioned as highly profitable premium-priced offerings.

This cash-rich company with a solid balance sheet regularly increases its dividend and buys back its shares. It is, however, facing an increasing number of lower-priced private-label competitors, and its advertising spending is substantial.

Atlanta-based Southern Co., which owns electric utilities in Alabama, Georgia, Florida and Mississippi, has more than 4 million customers. The majority of its capacity comes from coal-fired plants. It operates in a region positive toward business and it is known for its engineering expertise.

Southern has consistently increased its dividend, which is one reason why its stock is widely held.

"If market volatility continues and the economy stays sluggish with crisis overtones, there definitely are some steady-eddy areas to look to within the market," said James Paulsen, chief investment officer with Wells Capital Management in Minneapolis. "After all, you buy toilet paper and toothpaste whether the economy is growing 10 percent or contracting 10 percent."

The only downside to that game plan, Paulsen added, is that these groups won't be all that attractive if the economy really makes a turnaround.

"Companies like Kimberly-Clark make the products that people need in good times and in not-so-good times," said Allan Nichols, equities strategist for Morningstar Inc. in Chicago. "While big pharmaceutical companies did not hold up well in 2008 because they had so many patents expiring, they recently have held up better than the market."

Sanofi (SNY), a pharmaceutical giant that produces a wide array of drugs, has been a solid stock performer this year and is admired by Nichols. That Paris-based company derives nearly one-third of its revenue from the U.S., one-third from Europe and most of the remainder from fast-growing emerging markets.

Sanofi's cash flow is strong enough to easily cover its debt expenses. Diabetes drug Lantus and antithrombotic treatment Lovenox are among its strongest performers, and it has a number of worthy late-stage drugs in its product pipeline. Success of the new drugs will be crucial because it faces some major patent expirations between 2011 and 2015.

Diversification in all of your investments should be an ongoing theme no matter what is happening in the economy, believes Paulsen. He'd include different types of stocks, Treasuries, high-yield bonds and commodities so that your personal holdings are positioned for anything the economy can throw at you.

"I don't care if you hate Treasury bonds -- you have to have some in your portfolio," said Paulsen. "I think they're terrible, but I have some myself."

Always keep some holdings in defensive areas, but realize that it also makes good sense to begin to buy some of the stocks "being thrown out the window," Paulsen said. Keep a basic portfolio structure that doesn't change significantly, but take some advantage of panics.

Since stocks that hold up in hard times are important, you might take a look at some others.

Procter & Gamble Co. (NYSE:PG), the world's largest consumer product manufacturer, is known for its Tide, Charmin, Pantene, Cover Girl and Iams brands. Sales in developing markets continue to grow. Strong cash flow is displayed in its dividends and share repurchases.

Novartis AG (NVS), Swiss maker of branded and generic pharmaceuticals, vaccines and consumer products, has a portfolio of drugs that are nearing approval. Strong cash flow can cover the debt from its purchase of the Alcon eye-care firm. The fact that the company operates across several distinct businesses makes its earnings more stable.

Not all of the stocks that hold up in a volatile market can be termed boring.

"Apple Inc. (AAPL) has managed to perform in a phenomenal way and recent market turmoil has had absolutely no effect on it," said Nichols. "The iPhone is so popular, and everyone is so excited about the iPhone 5 now."

So remember that when the market goes down, not all investments go down with it.