In spite of what the headline economic numbers may say, the recovery hasn't really made its way from Wall Street to Main Street. Unemployment is still above 9.5%, 95,000 jobs were lost last month, 9.5 million people remain long-term unemployed, and the level of "involuntary part-time workers" is on an upswing.

On top of a shaky jobs picture, gold has been hitting new all-time highs on the back of a weakening dollar, as the Federal Reserve continues its vainglorious attempt to "push on a string" to stimulate weak demand. Add the potential for rapid future inflation that brings to a generally stagnant economy, and the picture starts to look bleak, indeed.

It's ugly out there
With a backdrop like that, is there any wonder why the market has been so volatile? As an investor, it seems as though you're caught in a classic no-win situation, where anything you do will lead to disaster. With inflation threatening and interest rates looking more likely to head upward, you don't want to buy bonds, because you can lose your shirt as rates rise. And, of course, with yields near zero, cash doesn't exactly seem like a worthwhile investment right now, either.

Which essentially leaves you with stocks. But who wants to own an investment tied so closely to economic growth at a time when real growth looks precarious at best and nonexistent at worst?

Yup. It looks like there's no easy answer, especially for those who are trying to balance the need for long-term investment returns with far more immediate concerns like staying employed.

Not all stocks are created equal
Fortunately, if you're willing to look past the sweeping generalities, things aren't quite as ugly everywhere as they may seem in general. Stocks, after all, are small ownership stakes in individual companies. Those companies are all financed and operated independently and have each been affected differently by this economy. Some are stronger than others.

If you invest in the ones that are still fundamentally strong and rewarding their shareholders, you can still get long-term benefits of stock ownership, even in this shaky economy. The ones that are in the best shape have:

  • Healthy balance sheets: More cash and equivalents on hand than current (short-term) liabilities, which indicates they're not at risk of a short-term cash crunch.
  • Strong cash flows: More cash from operations than reported profits, which indicates the company is able to make real money, rather than just accounting profits.
  • Solid, well-covered dividends: Dividends are tangible rewards to shareholders, and they show that a company is managed on its owners' behalf. A payout ratio below two-thirds of earnings indicates that the company is interested in both rewarding its shareholders and reinvesting in its own maintenance and growth.

Thanks to the current state of the economy, I believe these types of businesses are the only ones worth owning. Companies that fit that description are few and far between, but there are a handful that qualify, including these:


Cash and Equivalents
(in millions)

Current Liabilities
(in millions)

Cash From Operations
(in millions)

Net Income
(in millions)

Payout Ratio

Lorillard (NYSE: LO)






Limited Brands (NYSE: LTD)






J.M. Smucker (NYSE: SJM)






Hasbro (NYSE: HAS)






National Semiconductor (NYSE: NSM)






Brady Corp. (NYSE: BRC)






WD-40 Co. (Nasdaq: WDFC)






Source: Capital IQ, a division of Standard & Poor's.

Own the best
At Motley Fool Million Dollar Portfolio, no matter what the economy is doing, we consistently search for and select from the strongest companies around, and invest the Fool's own money in them. Our members have also benefitted from being able to invest in those solid companies. In fact, because they understand the strength of the companies behind the stocks they own, many have been able to use volatility-induced weakness to buy more shares at bargain prices.

If you realize that now, more than ever, is the time to own stocks in solid companies, consider joining us at Million Dollar Portfolio. If you'd rather see which companies have already made the cut, simply click here to enter your email address and learn more.

This article was originally published on March 2, 2010. It has been updated.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of J.M. Smucker, and his wife owned shares of Limited Brands. Hasbro is a Motley Fool Stock Advisor recommendation. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.