Downside protection

Downside protection is anything that limits how far a stock can realistically fall if a bearish scenario plays out, separate from what might make it a good investment on the upside. A cheap valuation can provide it, a stock already priced for bad news has less room left to fall further on sentiment alone. A strong balance sheet can provide it too, cash and little or no debt give a company room to survive a difficult stretch without raising money on unfavorable terms or cutting the business down to the bone.

Downside protection isn't a guarantee against loss, a cheap stock can always get cheaper, and a strong balance sheet doesn't fix a broken business on its own. It's a way of sizing how bad the worst realistic outcome is, which then shapes how large a position makes sense to hold.