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3 Small, Defensive Stocks for a Volatile Market

Stocks in this article: HCSG SBAC ALLT

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Bryan Ashenberg joined NBR on Tuesday (watch video and read transcript here) to highlight small- and mid-cap stock picks for a volatile market.

NEW YORK ( TheStreet) -- With market volatility on the rise and the health of the global macroeconomic outlook in question, many investors are looking for a safe haven. Small- and mid-caps are typically among the more speculative types of equities, but even within this universe of stocks, we can find names whose qualities provide some defensive characteristics. Here are three companies worth checking out.

First up is Healthcare Services Group (HCSG). The company is a leading provider of housekeeping, laundry, linen and food services to the long-term care industry and is a high-quality growth play with impressive defensive characteristics.

Word on the Street

The company boasts 90%-plus customer renewal rates, a robust balance sheet and a healthy 4.3% dividend. In fact, Healthcare Services Group has raised its dividend for an impressive 32 consecutive quarters.

The company's new foray into food services is providing an extra boost to revenue growth and offers opportunities for continued operating margin expansion. We are bullish on the company because its mix of intriguing growth drivers and defensive industry and stock components make it an attractive and stable investment.

Second, SBA Communications (SBAC) owns and operates wireless communications towers in the U.S., Canada, Puerto Rico and the U.S. Virgin Islands. SBA generates the bulk of its revenue from leasing antenna space on its towers to wireless-service providers and the remainder from providing site-consulting and end-to-end construction services for its wireless-carrier customers.

The basic investment thesis is that the tremendous growth in the demand for mobile broadband is driving the need for greater tower usage. SBA has excellent visibility into its revenue stream, as most leases are executed on a multi-year basis. The wireless tower companies have 3% to 4% annual rent escalators built into most contracts.

>> Discover More Breakout Stocks to Boost Your Portfolio

The company's business model has considerable leverage, stemming from the fact that new antenna leases on an existing tower require very little in the way of incremental expenses. Tower companies have high barriers to entry as local zoning laws and land availability help reduce competition. We believe that the company's steady cash flow, U.S.-focused revenue generation and fixed-rent increases continue to offer investors a safe haven in this volatile market.

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