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Investment Ideas

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It's tough to be bullish on the stock market right now.

Recent economic data suggests that the U.S. economy is slowing and close to stall speed. And while companies have managed to deliver a decent number of positive earnings surprises this quarter, revenue growth - which is harder to manipulate than EPS - has been anemic.

The picture isn't any prettier overseas either. Bond rates are near bailout-levels in both Spain and Italy. And economic growth in the emerging markets is slowing considerably.

Don't Sell Everything Just Yet

Investors looking for some safety amid a potential market storm may be tempted to flee stocks altogether. But not all stocks will get beaten down during a bear market. In fact, during 2008 - the 3rd worst year for the stock market in its history - 6% of the S&P 500 finished in the green for the year.

That's not spectacular, but it does show that there are pockets of safety during a market pullback. So rather than stuffing your money under the mattress or into ultra-low yielding bonds or savings accounts, consider these three areas of the stock market instead:

Discount Retail

Discount retailers made a killing during the Great Recession as consumers tightened their belts and traded down from higher-priced stores. And this trend has continued even as the economy has slowly improved since then. While the U.S. consumer may be sick of pinching pennies (a condition known as "frugal fatigue"), unfortunately it doesn't look like they have much of a choice. Incomes have been stagnant as the job market continues to struggle.

Don't expect Americans to leave discount retailers anytime soon - recession or not.

Generic Pharmaceuticals

Americans' frugality isn't just benefitting discount retailers. According to the Generic Pharmaceutical Association, Americans saved over $157 billion in 2010 by choosing generic drugs over their brand name counterparts.

And with close to 10,000 Baby Boomers in the U.S. turning 65 every day, demand will only continue to grow. This gives generic drugs the enviable position of growth and defense to weather any market conditions.

Master Limited Partnerships

For investors wanting to add some defense to their portfolio while also generating solid income, MLPs can be a great addition. Most MLPs operate in the midstream sector which gathers, processes, transports and stores oil, natural gas, and refined petroleum products.

The midstream subsector is particularly attractive because it generates fee-based income that doesn't fluctuate with volatile commodity prices. This allows the partnership to provide steady cash flows to its partners. In fact, no midstream MLP was forced to cut its distribution during the financial crisis, even as commodity prices plummeted.

That's stability.

3 Safe Havens

Discount Retailer:
Dollar Tree (DLTR - Analyst Report)

Dollar Tree is the largest single-price-point retailer in the U.S. with over 4,300 stores in 48 states. Just how resilient would Dollar Tree be during a market pullback? If 2008 is any indication, shares were up more than 60% that year.

Take a look at the company's Price & Consensus chart. Consensus earnings estimates have steadily risen in each of the 5 years, both during and after the Great Recession:

Generic Pharmaceutical:
Watson Pharmaceuticals (WPI)

Watson is among the top five pharmaceutical companies in the United States and among the top four generic companies in the world, based on total prescriptions. Shares of the generic drug maker were down just 2% in 2008 as sales and profits held strong.

And consensus estimates over the last 5 years have moved primarily in just one direction - up:

MLP:
Enterprise Products Partners (EPD - Analyst Report)

Enterprise Products Partners is the largest publicly traded energy partnership. It provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products and petrochemicals. Its 50,000 miles of pipelines link producers from some of the largest supply basins in North America with domestic consumers and international markets.

Enterprise Products Partners has increased its distribution a remarkable 32 consecutive quarters - even throughout the Great Recession. Since 2000, it has raised it at a compound annual growth rate of 8%. It currently yields 4.6%:

The Bottom Line

While the stock market is facing many headwinds, not all stocks will get clobbered if there is a selloff. These 3 stocks should hold up relatively well if we are headed for some increased turbulence.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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