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 (NYSE:AA) or United States Steel (NYSE:X) 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.
Fool contributor Matt Thalman owns shares of Apple. Check back Monday through Friday as Matt explains what caused the Dow's winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter @mthalman5513.
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