This week, Zacks Equity Strategist Mayur Thaker, CFA discusses:

• Applying the Shiller P/E Ratio (also known as the CAPE Ratio) to stocks in the Earnings Certain Portfolio (ECP) to improve the portfolio’s already strong downside protection. Mayur manages the Zacks ECP family, and in this video he shows how he uses Shiller to provide a clearer view of valuations of the companies in his portfolios.

• Mayur points out that bear markets are the result of two factors: earnings decline and P/E multiple compression. To find companies that can withstand a downturn, he looks for durable businesses that exhibit earnings linearity as well as other elements of quality. But even with steady earnings, P/E multiple compression can still lead to valuation risk. The question becomes, how do you minimize this risk?

• This is where the Shiller P/E Ratio comes in. It can help you find recession-resistant businesses (like virtually every name in the ECP) that may be trading at recession-level P/E multiples (i.e., cheap). Mayur provides examples of these types of companies, including ECP members J. M. Smucker Company (SJM), 3M Company (MMM), Henry Schein, Inc. (HSIC), and others. Watch this week’s video to learn how the Shiller P/E Ratio can provide a more accurate picture of a company’s valuation.