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 around 10%, and a recent jobs report had the puzzling combination of both a higher total number of jobs and a higher number of long-term unemployed people. As if that weren't bad enough, hourly wages are somewhere between stagnant and down.

On top of a shaky jobs picture, the debt market remains tight, especially in the wake of sovereign debt crises in Greece and elsewhere around the world. Add China's recent sale of U.S. debt and the potential for higher interest rates that brings to the mix, 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 remains skittish? 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, as you can lose your shirt as rates rise. And, of course, with yields near zero, cash doesn't exactly seem like a worthwhile investment, 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 & Equivalents
(in Millions)

Current Liabilities
(in Millions)

Cash from Operations
(in Millions)

Net Income
(in Millions)














Western Union












Limited Brands






(Nasdaq: GRMN)












Own the best
At Motley Fool Inside Value, throughout this economic meltdown, we've consistently searched for and selected from the strongest companies around. Our members have benefitted from being able to hold onto the solid companies. In fact, because they understand the strength of the companies behind the stocks they own, many have been able to use the 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, join us at Inside Value. If you'd rather see which companies have already made the cut, click here to start your 30-day free trial. There's no obligation, and you'll be among the first to discover which solid company we'll find next.

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 Mattel, and his wife owned shares of Limited Brands. Western Union is both a Motley Fool Inside Value selection and a Stock Advisor pick. Motley Fool Options has recommended a write covered calls position on Western Union. The Fool has a disclosure policy.