The Economist Book Series Review: Guide to Analysing Companies

This review is part of a series of comprehensive book reviews by Ryan Vanzo on The Economist book line. The Economist book line is written for people who want a clear and unbiased explanation of the language and principles of key business disciplines. The books are published by Bloomberg Press and can be purchased from their website BloombergPress.com.

In this type of market, good management goes further than usual. With depressed prices on almost everything, competent management should be able to leverage their companies' business to take advantage of today’s values and build for the future. The following company not only has a healthy growing business, but has more than able management to help boost the company’s returns for years to come.

NTELOS Holdings Corp. (NTLS)

Every private portfolio needs to have at least some exposure to each sector (Agriculture to Telcom) and class of security (Growth to Value). In this article, I highlight 3 stocks that might fill in the missing piece of your portfolio.

Stable Blue-Chip: Procter & Gamble (PG)

The infamous subprime meltdown has come and passed, but does that mean that we are in the clear? Maybe, but a look at a Mortgage Rate Reset Timeline graph suggests otherwise:

S&P (MHP) credit ratings give you an in depth look into a company's financial health, but can they also be used for bear/bull strategy trading? Turns out they can. Here's proof:

When the market has turned sour, the highest rated companies (A+) have outperformed the lowest rated companies (C) by a whopping 45%. For every notch up on the credit rating scale, the company has performed better through this recession. Here is a table which displays the performance of stocks grouped by their S&P quality ratings from the beginning of 2008 to last December:

While many investors are unsure of where the market is going from here, many of them agree wholeheartedly on one thing: inflation. With record-setting government debt and spending, combined with a possible resurgence of commodity prices, both consumers and investors face an inflationary dilemma.

Most investors, smelling high future inflation rates, have fled to the traditional assets that battle such an event. These include TIPS, Gold, and commodities in general (commodity ETF's).

Recently, I have been looking to add some small positions in stocks that would excel during an economic recovery. Unfortunately, after a quick search of these types of stocks, it's easy to see that their valuations have risen through the roof as of late, with not much changing on the fundamental side.

From shipping to commodities to business services, it's becoming much harder to find value, especially with the recent market rally. Fortunately, I think I've found a company, who although extremely risky, might be able to find a place in the 'speculation' section of many investors portfolios.

1) Credit is still largely frozen, disabling a consumer-led comeback: With the Fed fighting for more credit and liquidity, the government has stepped in the opposite direction recently, with the new credit card laws. These measures were necessary, but not right now. Fact is, it will be harder for students (with little or no credit score) and low credit score consumers to obtain new credit cards. This should work out in both the lenders and consumers favors in the long-run (with the lender receiving better credit, high paying clients), but in today’s market, it’s the one’s with the most credit who are hunkering down. There is credit being lent that isn’t being used and potential creditors not getting their fair chance to help out the economy.

2) Historically, the S&P 500 has bottomed out with EPS around $5 to $9: Although historic metrics are backward thinking, and not always correct, they do give some view on likely potential situations. The earnings on the S&P were attractive before the bad earnings were out, but just a few weeks ago, they traded at a lofty 12x earnings, at least compared to historical comparisons. With the recent run up, it is trading at 15x earnings, even more lofty for this type of recession.

Although share price can’t tell you everything, if anything about a stock's health, sometimes it’s a good place to start looking. Below are three stocks whose share price has been killed during the recent bear market. Even though some of these names have experienced considerable run-ups recently, they are still largely under their 52-week highs. Here is a quick analysis on some potential investments.

TBS International (TBSI), Shipping:

In these market conditions, consistent, reliable high-yields are fantastic. It's also great when that company has monopolistic characteristics and is valued cheaply. A stock that fits these traits is none other than Altria Group (MO).

Although I believe there are many things to like, such as the sustainable high-yield, I think the growth prospects are so low that there has to be better investments out there. Although I don't necessarily think an investment in Altria is a terrible idea, I think there are other options that have significantly higher upside.

Although I would love it if the market is only headed higher, there are a lot of possible scenarios that would send it lower yet again. The following list isn't necessarily what I think will happen, just things that are possible, some more than others. Many of the things seem inevitable in some economists' eyes, so in today's market, buyer beware.

1) A Crash In the Dollar: Some would say this is inevitable with the government printing money like it's Christmas, but yet others see it as unlikely. The dollar may be strong currently, as it is usually the currency of choice during troubled times, but once confidence resumes, the dollar may fall back to reality. In the process, it could send us down yet again by causing interest rates to rise at an inopportune time.

Having cash on the balance sheet is one of the attributes of an attractive investment opportunity in today's environment. Not only does it provide a safety net for the company to fall back on in hard times, but the best defense is usually the best offense. Having cash on hand allows a company to make strategic acquisitions during tough times, on the cheap.

It's often the case that companies trading near cash value are expected to turn a loss during the near future. Not only does that provide a good buying opportunity for the long-term investor, but the stocks listed below are actually expected to turn a positive EPS over the next 12 months.

Sometimes good stocks are run up too far. Sure, you may take a look at Coinstar (CSTR) and Netflix (NFLX) and see all the positives. Netflix's main competitor Blockbuster (BBI), is teetering on the edge. With Blockbuster out of the way, Netflix should be able to pick up a huge amount of market share without even trying. Coinstar's Redbox and DVDXpress units saw sales at DVD machines installed at least a year leap 52% last year. It plans to increase Redbox's installations by about half this year.

So what's the problem? Not much, but lofty expectations usually result in huge corrections if expected earnings aren't met. Looking at both both Netflix and Coinstar's valuations, they have high expectations indeed.

Although the political and social conditions in Mexico are pretty rough, sometimes that's the best time to invest in developing and even developed nations. Although you don't get the political stability you get with the US, Mexico does offer its perks, including huge monopolies. The greatest part about some Mexican monopolies is that they won't be regulated anytime soon, because they were created by the government.

A few years ago the government of Mexico sold off many of its airports to be run as private companies. Most of these companies have 100 year leases on the properties. Before you move on, I'm not talking about airlines, but the actual airports themselves. There are many positives from the deepening economy, but the pluses are to die for in a healthy economy.

Is the buy-and-hold strategy dead? Can long-term investors just sit back and ride out the market bumps? This is what everyday people are told are told to do by the financial elite. Wait and don’t worry.

Following the recent market crash in the oil and energy sector, many investors have gone bargain hunting. But in this volatile market, which energy stock has the greatest risk to reward ratio? Without knowing when depressed energy prices will rise again, which names offer protection against bankruptcy and insolvency? My favorites in this type of market are the heavy hitters, the stalwarts of the market. Sure they may not have as much upside as some of the smaller names, but they offer me the much sought after safety blanket in today's rough market, while still capturing the upside in the eventual rise in energy prices.

The following is a brief overview of the top 5 energy companies based by market cap:

Don’t get me wrong, I love this bear market rally. It makes me feel good. Makes me feel wealthier. Makes me feel more confident. But is it warranted? Even if it isn’t, sometimes just thinking the worst has passed helps the market recover more quickly than previously thought possible.

But remember, bear market rallies are usually the largest. And if you look into it, not much has changed but psychology. Here are my top ten reasons for why the worst may still be to come.

Natural monopolies are, forgive the pun, a natural place to look for companies with a large moat. Large moats allow businesses to have a little more flexibility when choosing their strategies and also allow more room for errors, as competitors can’t move in as quickly. Large moat stocks are some of the most comforting places to be in this market of uncertainty. In down markets, they are usually able to expand their market share even further, taking advantage of their size or edge.

This brings us to our monopoly of the day, NYSE Euronext (NYX). When a company is looking to go public, there aren’t many choices to be found, especially if you want to have a healthy amount of volume and exposure. NYSE provides a company with the visibility and prestige of listing on one of the most well known and oldest stock exchanges in the world.

These days, everyone is looking for a solid dividend paying stock. Many media pundits are claiming it’s a dividend buyers market. This is true, but don’t assume that all dividend stocks are created equal. Many high-yielding stocks have unsustainable dividends; many others are supported by the issuing of stock or debt.

So what is a safe company with a reliable high-yielding dividend? All you have to do is look at the end of your driveway, or perhaps, your neighbor's.

The closing of plants and the lowering of production has been a regular event recently as companies face a worsening recession. But when I tell you that Intel (INTC) has planned to close plants in Malaysia, the Philippines and Silicon Valley, it's not payment for the recession. In fact, it's the opposite.

Most companies spend most of their money during the upturns of the economy, and are forced to cut back during the downturns. Only the most well-run companies are able to save money during the good times, and in turn invest heavily in their businesses when business is tough, at a much cheaper price than their competitors did.