The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By David Sterman NEW YORK ( StreetAuthority) -- Every year, the research team here at StreetAuthority looks over thousands of potential stock picks. We spend countless hours analyzing companies, looking for any signs that a stock is either a good or bad investment. Most of the companies we research have both bullish and bearish factors to consider. But in a few rare instances -- literally less than 1% of the time -- we find a handful of stocks that boast some of the best business models on earth. These rare companies enjoy huge sustainable competitive advantages, pristine balance sheets, ample cash flow, and more often than not, they pay healthy dividends. When we find rare gems like these, we like to buy these stocks and hold them forever. In fact, we recently published an entire presentation on our
However, like any other financial metric out there, the "current portion of long-term debt" has its limitations. Although a company might have a high level of debt coming due in the next year, it does not guarantee that it will fail. I'll explain more about this later in today's article. In the meantime, let's get started... During the past generation, a reasonable level of debt has always been seen as appropriate, because balance sheets were able to withstand a typical recession. Yet all that changed in 2008. GM's ( GM) debt load crashed the company, forcing it into bankruptcy, while many other companies such as GE ( GE), Ford ( F), Hertz ( HTZ) and Domino's Pizza ( DPZ) saw their stocks plunge on fears a bankruptcy filing would be necessary if economic conditions worsened. Thankfully, many companies wised up and have been taking steps to strengthen their balance sheets. But not everyone got the message. Some companies still carry too much debt and might run into trouble if the U.S. economy slips back into recession. These companies will need to make large payments to handle their debt in coming periods, and right now they are at risk of not having enough cash to meet potential obligations. Typically, a company can simply roll over that debt and push out the time frame when debts come due. But a weak economy would make this task much harder as lenders grow skittish. That's why it's so important to pay attention to balance sheets. Lots of debt is only a problem if the debts are soon coming due. For example, mattress maker Sealy ( ZZ) has a very weak balance sheet, with almost $800 million in debt and less than $100 million in cash. But management wisely sought to roll over debt while it could, and now the company faces no major repayments until 2014. Yet if a company's "current portion of long-term debt" -- that is, debts due within the next 12 months -- exceeds cash on hand, you need to listen to how management plans to address the problem because these companies could be at risk of failing. I went in search of companies that may have just such a problem (less cash than near-term loan obligations) and added Canadian media firm Thomson Reuters ( TRI) to the mix (its weak balance sheet is just above that threshold). The table below highlights a group of companies that are at risk of having to declare bankruptcy in 2012 if their lenders are in no mood to extend them more loans.
Risks to Consider: Some of these stocks already trade at levels that suggest imminent financial distress. If they're able to shore up their weak balance sheets, then short sellers may boost the stocks by short covering. And as I mentioned earlier, "current portion of long-term debt" is a good metric to consider, but it isn't perfect. It's important to realize that this metric only points to increased risk of financial trouble, and it does not imply that failure is imminent or inevitable. Action to Take: If you own any of the 12 "at risk" stocks we've identified above, then consider selling them now, because all of them could tumble in a hurry. Instead, we'd suggest looking at the rare 1% of companies in our coverage universe that fall on the entirely opposite end of the spectrum -- financially-stable companies that enjoy some of the best business models on earth. We call them
"Forever" stocks. These stocks benefit from sustainable competitive advantages, pristine balance sheets and ample cash flows, and we think you can buy them today and hold for the rest of your life." In fact, when we started to research "Forever" investments, we discovered something very unusual -- many of the world's richest, most successful investors, politicians and businessmen are loading up on "Forever" stocks. For example, one of our favorite "Forever" stocks has jumped 585% since it went public just a few years ago, and legendary investors like Warren Buffett are loading up on the stock. In fact, Buffett has bought more than 400,000 shares of this "Forever" stock in recent months. For more on these stocks -- including several names and ticker symbols -- check out The 10 Best Stocks to Hold Forever." Disclosure: Neither D. Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article. The Dividend Chart You Have to See 3 Steady Chip Stocks for a Volatile Sector Buy Buffett's Favorite Energy Stock... For Less Than He Paid