Three Stocks Set to Gain Despite Economy

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BOSTON (TheStreet) -- If we're at the outset of a September correction, it's time to play defense. Here are three stocks that would grow even in a tepid economy.

These companies offer products that would gain appeal in a prolonged recession, or stand to benefit from economic stimulus funding. If the S&P 500 Index reverses its 14% climb this year, they might be good stocks to own.

Ralcorp(RAH Quote) is a solid bet if you expect consumer spending to remain weak. The St. Louis-based company sells generic food products in the U.S., but it also owns Post cereals, which it bought from Kraft Foods(KFT Quote) in late 2007.

Fiscal third-quarter net income rose 63% to $75 million, but earnings per share fell 32% to $1.31, hurt by a higher share count. Revenue surged 51% to $994 million. Its gross margin jumped from 21% to 31% and its operating margin rose from 7% to 13% on higher prices and cost containment.

A fourth-quarter net margin of 6.4% compares favorably to those of competitors Conagra(CAG Quote), Dean Foods(DF Quote) and Tyson Foods(TSN Quote). Although large caps Coca-Cola(KO Quote), PepsiCo(PEP Quote) and Kellogg(K Quote) enjoy wider spreads and brand power, they become vulnerable as consumers shift to cheaper food, a trend that benefits Ralcorp.

With a forward price-to-earnings ratio of 13, the stock is about 20% cheaper than food products peers. Shares trade at just 1.4 times book value, less than the Russell Midcap Index average of 1.9.

Ralcorp has a beta, a measure of market correlation, of 0.2. Our model gives the stock a volatility score of 6.8 out of 10, higher than the "buy"-list average of 4.6. Ralcorp is poised for stable growth in any economic scenario. The downside is that the company doesn't pay dividends.