Can Stock Fundamentals Protect You? by Lewis Carl Mokrasch, Ph.D.
To use fundamental information to find the characteristics of crash-proof stocks, I correlated the price action of stocks during the October 1987 crash with their fundamental statistics. I used data from Barron's and the Media General Financial Weekly Market Digest to select two groups of stocks—one whose prices fell more than 5% in the crash (the Decliners) and another whose prices fell less than 5%, or even rose (the Nondecliners).
Figure 1 gives those statistics for which there was no significant difference between the means of the Decliners and the Nondecliners. Surprisingly, the yield, price/earnings ratio and the return on equity were about the same for both groups. The price/earnings ratio of the Decliners was 19.5 ± 13.2; for the Nondecliners it was 16.0 ± 13.1. Sentimentally, one might judge that the higher P/E ratio of the Decliners would make them more vulnerable in a decline. The difference between the two groups in P/E ratios, on the other hand, is just not significant (p > 0.3).