Companies with little or no debt on their balance sheets -- such as Cisco Systems (CSCO) (no debt until the acquisition of Scientific Atlanta added a modest $6.5 billion to long-term obligations) and Google (GOOG) (no debt) -- are turning out to be bastions of safety for road-weary investors. Likewise, companies with mainly liquid assets (stocks and cash) or with tangible assets (inventory or land) are looking pretty good too. Simply put, when things turn bad, investors turn to quality.
Betting on Banks
But even though the balance sheet is a little bit of sanity in a crazy market, it's not something you should look at by itself. According to Doug Lamdin, a professor of economics at the University of Maryland, Baltimore County, "A balance sheet, at a point in time, can show important financial circumstances such as the ratio of liquid current assets to current liabilities, or how much debt was used to finance the assets. What a good analysis should include is an examination of how balance sheet items, or ratios, are changing over time, and whether [the changes] are good or not."
Just look at DuPont (DD): The chemical giant has seen assets grow 14% in the last five quarters while keeping its debt load essentially flat. That's a good trend."Good" is a pretty relative term. Small regional banks saw triple digit gains in the last month, in part because the rest of the banking industry was in the midst of such catastrophe. While giants like Washington Mutual (recently bought out by JP Morgan Chase (JPM)) and Wachovia (WB) crumbled, BancTrust Financial Group (BTFG) (BTFG) saw double-digit returns this quarter, due in no small part to no debt, a growing cash position (up 28% since 2006), and hope for insulation from subprime losses (research shows that community banks were less likely to dole out subprime loans).
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV