In the following video, Fool contributor Matt Thalman discusses how the cost of doing business in certain industries can really cut a company's profits down to just a few percent of its total revenue. A company like Alcoa (AA) or United States Steel (X -1.57%) are two great examples of organizations that are at the mercy of an industry-wide commodity pricing system, which has reduced profit margins to nearly nothing over the past few years.
With low margins, the likelihood that a company can make it through another tough economic climate is very unlikely. So, as an investor, focusing on companies that have pricing power and strong double-digit profit margins will help ensure that the next recession doesn't send your portfolio into the dumps.
