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5 big stocks thrive in corrections

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

Corrections wreak havoc with portfolios and scare investors to death. But it doesn't always have to be that way.

There are five stocks in the Standard & Poor's 500 that have thrived during past corrections: hazardous waste collector Stericycle and utilities Public Service Enterprise, Dominion Resources, Edison International and Southern Company.

Each of these stocks have posted average gains in the five corrections prior to the current one, beat the market during each of those periods and are holding up better than the market during the current downturn, according to a USA TODAY analysis of data from S&P Capital IQ.

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Investors are hopeful the market can pull out of its latest correction, which this week violently yanked the S&P 500 down nearly 12% from its high on May 21, 2015. But given all the risks - a slowing economy in China and decent odds of a hike in short-term interest rates sometime this year in the U.S. - investors know the market could have some trouble shaking off the malaise.

And that's why investors are wise to know what kinds of stocks tend to hold up best—even during corrections.

Utilities certainly deserve the reputation they get for being a bastion of strength during corrections. Four of the five stocks that have thrived and posted average gains in the previous five corrections during the past are all utilities. That truth goes even further. Nearly half of the 37 stocks in the S&P 500 that have beaten the the market in each of past six corrections—including the current one—are utilities stocks.

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Public Service Enterprise is the classic example of a correction-resistant stock. Shares have gained 3.2% on average over the past five corrections - while the market itself has dropped 16.3% on average during the same time periods. The stock's market-beating dividend yield of 2.8% provides investors with some cover, too. The stock hasn't fared quite as well in the current correction—falling 8.8% from the high in May. But that's still much better than the 12.4% decline by the S&P 500 during the same period.

If there's been a stock that delivers big-time during corrections, it's Stericycle. The company that provides a variety of hazardous waste removal services has risen 1.3% on average during the previous five correctionsmaking it a solid performer in the S&P 500 by this measure. Stericycle, too, has been pulled into the market's recent selloff. Shares are down 1.9% from the market's May high. But it's living up to its reputation again this time - as the stock has held up the best among the five stocks from the highs among these five stocks.

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Similarly, Dominion Resources has fallen just 2.5% during the most recent market correction. That's not the take away from the fact the stock has gained 1.4% over the previous five corrections and it has a current dividend yield of 3.6%. Not a bad place to hide while other investors are getting hammered.

It's important to note even these stocks can fall during individual corrections—they just tend to fall less and do well on average. Correction darling Stericycle, for instance, lost 13.8% of its value between the April high in 2011 and the October 2011 low. That seems baduntil you realize the market dropped 19.4% during that time. And that's the only time in the previous five corrections that the stock fell.

Corrections might seem frightening and investors might feel like the entire stock market is falling apart. But that's rarely the case—and investors with a diversified portfolio can some some strength somewhere.

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