Balance Sheets Matter Now More Than Ever

What should you look for when you're trying to pick the next rocket stock?

Well, for starters, don't be fooled into thinking that there are red flags aplenty. According to Lamdin, "If we knew what [the red flags] were, chances are the stock price would reflect this. There may be smaller less brightly colored ones that one can look for; inventories or accounts payables rising are worth looking into, for example."

If you're looking at a stock with a strong balance sheet, don't forget about just how much valuation plays into the equation. Lamdin says, "A high-quality corporation with an overpriced stock is not a good investment, whereas an average-quality corporation with an underpriced stock is."

Although not all companies with healthy balance sheet numbers are bound for double- or triple-digit glory, those without them are finding themselves in dire straits, as liquidity dries up in the credit market.

Want a chance at making money in 2009? Stick to companies with solid balance sheets.

>To order reprints of this article, click here: Reprints