Learn from the miser
Of all the things I've done as an investor, my smartest-ever move might have been to send an email to It's Earnings That Count author Hewitt Heiserman Jr. in September of 2004. My modest request for an interview back then led us to create a screen that's crushed the market every year we've run it.
The centerpieces of this "Scrooge" screen, as we'll call it, are reasonable valuation, sustainable growth and earnings, good capital management, low institutional ownership, and balance sheet strength. It's that last point that matters most for today's column.
"I think one of the great lessons of the late '90s is that investors forgot about [debt] and the rest of the balance sheet," Heiserman said during our 2004 interview. Four years later, they forgot again.
Dozens of firms that abused leverage are no more; Lehman Brothers is only the most visible. Investors have also been stung. Too many bought on margin and were forced to sell at precisely the wrong time. Chesapeake Energy's Aubrey McClendon could be the poster child for this particular brand of excess.
And he's got plenty of company. Even firms that have used debt responsibly are in trouble. General Electric
Tech firms usually know better. Certainly Intel
Most firms aren't that conservative. But were you to add up all the cash on the balance sheets of Silicon Valley's best, I bet you'd have enough to fund a good portion of President-elect Obama's proposed stimulus plan. General Motors says it needs a handout? Go see Steve Jobs -- he's got about $25 billion in the bank.
Take out the tech trash
Not that Apple
And what might Scrooge loathe? The balance sheet busts, of course. Where our tech buys are flush with capital born of massive free cash flows, two of our sells are deeply in debt and a third is trending badly. I'm sure you're familiar with them.
Advanced Micro Devices
As one of the emerging heavies in Web content delivery, Level 3 Communications
I hate adding Sun Microsystems
But those are my three ideas. What about yours? Would you sell any of these stocks? Would you buy? Insert your comments below and may yours be a very Happy, and very Foolish, New Year.
Apple is a Stock Advisor selection. Chesapeake Energy and Intel are Inside Value picks. The Fool owns shares and covered calls of Intel. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.
Fool contributor Tim Beyers is a member of the Rule Breakers team and had stock and options positions in Apple at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is tech-tastic.