It’s conceivable that the markets have put in their bottom, but it’s also entirely possible that this is just a regrouping period after many stocks became absurdly cheap in March. Although this is an excellent opportunity to pick up some bargain shares, it’s probably wise to keep an eye towards picking up stocks with some defensive qualities.

America Service Group (NSDQ: ASGR) provides health care to prison inmates at the local, state and federal level. In a time of falling tax revenues and tightening government budgets, administrators are increasingly turning to outsourcing prison service; the private sector frequently does the job more efficiently and therefore at a lower cost.

And even as many prisons are cutting budgets for food service and vocational programs, inmates retain a sacrosanct, constitutional right to health care. California, for example, only just resumed control of its prison health care system; the courts had appointed a receiver in 2006 in response to allegations that the state underfunded the system and provided inadequate care. While that receiver was in control, he actually moved to seize $8 billion from the state treasury to bring the system up to standard. The receiver never managed to capture the full amount, but the state faced an uphill battle fighting it.

That’s created a market for prison health care worth an estimated $9.3 billion annually–not surprising given that the inmate population has grown 3.8 percent a year for more than a decade.

America Service Group is benefiting from those trends. It currently holds 16 percent of the market share, providing services to 64 facilities in 23 states. Service contracts typically run between one and three years and more than 90 percent of contracts renew. That generates a highly predictable and growing revenue stream because the company is able to pass along increased costs, keeping earnings growth at around three percent a year. The company has continued to reduce debt, leaving it with almost $25 million in cash.

Most consumers view debt collectors with disdain, and many investors find the industry distasteful, but the fact is, it’s profitable–particularly during difficult times. True, it’s harder to collect when debtors are struggling to make ends meet, but that’s an obstacle that can be overcome through carefully targeted efforts.

Portfolio Recovery Associates (NSDQ: PRAA) fits that bill. Rather than purchasing huge swathes of debt in collection, it uses complex models to acquire only the debt it deems most recoverable. The company has purchased more than $35 billion in receivables since its inception for $761.6 million and has been able to collect at an average rate of three times that purchase price.

Two other factors have contributed to the firm’s success: It recently forayed into collections for municipal utilities, which typically offer higher recovery rates than bad credit card debt, and shifted its business model away from contracted debt collection. It now utilizes most of its staff to collect on consumer debt, primarily charged-off credit card accounts, which it purchases directly from the original lenders.

In the fourth quarter, cash collections rose 22 percent to $79.2 million, while revenues from its contract business were up 79 percent to $10.6 million. But despite handily beating analysts’ earnings projections, share prices have remained relatively low. That’s primarily because of heavy short interest in the stock, with short sellers betting that collections will fall in the tough economic environment.

That hasn’t hindered the company too badly. Last year the firm earned $45 million, down only slightly from 2007, and it successfully pushed through fairly substantial fee increases. Going forward, prospects look solid. Earnings have held up and the company has steadily reduced overhead costs. Although the stock’s defensive qualities make it an attractive option right now, it should really take off once the job market improves and erstwhile debtors have the wherewithal to service their obligations.

Our last play is Lender Processing Services (NYSE: LPS). Spun off last year from Fidelity National Information Services, Lender Processing Services provides default management and mortgage processing services. Although its mortgage processing operations have lagged since it became independent, its default management operations have soared as the pace of foreclosures continues to rise.

No matter how well Washington’s bailout plan works, it will take months–if not years–to stem the tide of foreclosures. As the leading provider of default management and foreclosure processing services, that’s big long-term business for Lender Processing.

It sold off sharply at the end of September as news of bailouts began hitting the press. But, again, it will take many months to see the effects of any plan, and whatever comes down the pike won’t change the situation for homeowners already in foreclosure.

And with foreclosure rates at record highs, 2008 revenues surged 10.1 percent to $1.9 billion, primarily due to increases in processing services. Earnings grew more than $9 million to $230.7 million.

Results could have been even better, but LPS was still working off charges related to its spinoff. Expect earnings and revenues to continue growing at least through the end of the year.

Benjamin Shepherd is editor of Louis Rukeyser’s Wall Street and Louis Rukeyser’s Mutual Funds.