The last stocks standing

In this tough economy, the companies that grow will be those that can outduel the competition.

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By Pat Dorsey, director of equity research for Morningstar

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(Money Magazine) -- For businesses, competing in a downturn is a lot like being in the wild, wild West at the end of a gold rush. Once the lode dries up, you have to be resourceful to survive and thrive.

One possibility - if you're quick enough on the draw - is to steal your rival's share. Well, that's sort of where companies find themselves now, in what could be the worst recession since World War II.

For investors who buy individual stocks, identifying businesses that are poised to grow by nabbing market share is particularly important today. That's because so-called countercyclical businesses - firms whose fortunes traditionally rise when the economy slows, such as fast-food companies, discount retailers and educational businesses - are often bid up by investors as soon as the slowdown starts.

Officially, this recession began at the end of 2007. And if you look at shares of McDonald's, Walmart and the educational outfit Strayer, you'll see they've done extremely well over the past year.

A better strategy going forward, then, is to focus on reasonably priced companies that are poised to take market share through a variety of means, even if they're in industries that are hurting. Here are four of my favorite share takers, all of which are attractively priced and have good odds of posting better-than-average profit growth in the coming years.

Sysco: Size matters

The restaurants that represent a majority of this company's sales may be under pressure in this slowing economy, but Sysco is North America's largest food-service distributor, controlling 15% of the market. That's likely to grow because this is an industry that has high fixed costs, requiring lots of distribution centers and delivery trucks. This means a big company like Sysco (SYY, Fortune 500) that can spread its expenses over a large base of business has a huge cost advantage over smaller competitors.

Keep in mind that food expenses are a major concern for the smaller customers that make up 80% of Sysco's sales. This gives it a big edge in being able to keep its clients while taking market share from competitors.

In addition to delivering food to restaurants and institutions, Sysco consults with clients to improve their operations by suggesting ways to cut costs and boost sales. These business reviews allow Sysco reps to leverage the company's extensive knowledge of the food-service industry. Clients that participate often see double-digit sales increases after their initial meeting, further cementing their relationship with the firm.

Now, Sysco isn't likely to enjoy barn-burning growth in a recession, but it should continue to take market share, which will allow it to grow at a respectable rate and increase its lead over rivals in the coming years.

Novo Nordisk: Focused research in a growing business

This Danish pharmaceutical company is already the world's largest manufacturer of diabetes drugs. It currently controls 52% of the global insulin market, which has grown more than 19% annually over the past five years as the number of people with diabetes has risen.

Yet even as the market is expanding, Novo Nordisk's (NVO) slice is growing thanks to its focused R&D budget and its specialized sales force. Also, Novo is the only company that has a complete line of modern synthetic insulin to fit all diabetic patient needs, which makes it a more attractive partner for diabetes specialists looking for a one-stop shop.

Combine these advantages with a patent portfolio that has relatively few expirations in the near term and Novo should be able to grow nicely no matter how this global slowdown unfolds.

U.S. Bancorp: Prudence pays off

In general, I like high-quality banks with strong balance sheets. While the rest of the industry has hunkered down to guard against future losses, the happy few that were prudent lenders have capital to lend now. This means they're in the process of taking business from the weak. I'd put U.S. Bancorp (USB, Fortune 500), Wells Fargo (WFC, Fortune 500), BB&T, HSBC and J.P. Morgan Chase (JPM, Fortune 500) in this group.

All have excess capital and should be able to win clients away from the competition. U.S. Bancorp, in fact, is expanding at a time when peers are pulling back, with plans to open more than 150 new branches in the next two years.

The company isn't immune to troubles in the economy. In early December, U.S. Bancorp's shares fell about 10% on news that the company boosted its provision for loan losses.

But relative to its competitors, it's played it safe. What's more, this bank generates 40% of its revenue from two lines of business that have been reasonably resilient to the downturn so far: credit-card and debit-card payment processing and wealth management.

Apple: The innovator

This share stealer is certainly a higher risk than others on this list. For example, the company's shares tumbled around 10% in early December on economic worries and renewed concern over the health of CEO Steve Jobs.

But Apple (AAPL, Fortune 500) is also potentially higher reward. This consumer tech company has shown decent resilience so far amid this slowdown in consumer spending. And there's a good chance, I think, that the company will retain its pole position in the nascent smart-phone market.

Despite the iPhone's relatively high price, sales have been off the charts, and the "App Store," where iPhone users can buy cool add-on programs, is expanding at a surprisingly fast clip.

Of course, Apple's sales could take a big hit if the slowdown wears on, given that many of its products are premium priced. If that happens, the company's shares would get pummeled. Hence the higher risk.

But the iPhone is at the cutting edge of a brand-new market, and one could argue that the device is cheaper than it seems, since its various features replace a number of other stand-alone devices that a user might need to buy.

The bottom line: Apple's exposure to the faltering U.S. consumer is a risk, but if the company can buck that trend by continuing to take market share, the stock could be golden and delicious.

Pat Dorsey is the director of equity research for Morningstar.

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