10 stocks for recovery 2009

8/2/2019 10 Stocks for Recovery 2009

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NewsletterAdvisors.com

Inside: Market Experts Provide Top Recommendationsto Ride Out the Financial Storm


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Top 10 Stocks for the Recovery from America's Leading Advisors marks the eleventh edition ofNewsletterAdvisors.com's complimentary signature publica-

tion. Each and every edition brings the best in investment ideasfrom the brightest minds in investing today to individual investorsjust like you.

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The Daily Reckoning,Addison Wiggin: Atlas Pipeline Partners (APL: NYSE) Page 3

High-Yield Investing, Carla Pasternak: U.S. Cellular Notes (NYSE: UZG) Page 4

Ian Wyatt's Recovery Portfolio, Ian Wyatt: SPDR Gold Shares (NYSE: GLD) Page 5

Penny Sleuth, Greg Guenthner: Javelin Pharmaceuticals Inc. (AMEX: JAV) Page 6

Bernie Schaeffer's FREE Daily Bulletin, Bernie Schaeffer:Abercrombie & Fitch (NYSE: ANF) Page 7

SmallCapInvestor PRO, Ian Wyatt: SXC Health Solutions (Nasdaq: SXCI) Page 8

Taipan Publishing Group,Justice Litle: Brookfield Infrastructure Partners (NYSE: BIP) Page 9

Tipping Point Stocks, Stephen Rawls: American Italian Pasta Company (Nasdaq: AIPC) Page 10

Validea,John Reese: Ameron International Corporation (NYSE: AMN) Page 11

BONUS:Ian Wyatt's Recovery Portfolio, Ian Wyatt: Hassman Strategic Growth (HSGFX) Page 12

Special Offers from Contributing Advisors Page 13

Spring 2009Released March 2, 2009

2009, Business Financial Publishing, LLC - All Rights Reserved

Table of Contents


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Ive been involved in investingand financial markets for thepast 15 years. In that time, I've

met every kind of investor... andheard about every kind of investingstrategy and stock opportunity youcan imagine.

Here at Agora Financial, we scourthe globe looking for hidden invest-ment opportunities often over-looked by Wall Street. Capital

&Crisis editor Chris Mayer uncovers these opportunities and deliversthem to you.

Chris is called by some "the best financial journalist you've never heardof ..."

And on behalf of Chris Mayer... I'll gladly put everyminute of my hard work and reputation building on theline. His Capital & Crisis subscribers have benefitedgreatly from his unique recommendations. His globe-trotting letter knows no bounds and goes whereverprofits can be found.

Over to Chris Finding the Great Investments He's Been

Searching for His Whole Career

I'm going to show you how you can start collecting a 20%-plus yield -- on one overlooked energy stock -- right away. Besides these plumpdividends, you'll get a good shot at tripling your money. And there'sgood reason to believe you could make nine times your money -- if Wall Street wakes up and smells hard assets, and pays exactly whatthey're worth.

The market isn't rewarding Exxon, Chevron or even Gazprom. Andnow is not the time to start taking risks on wildcat energy explorers.Right now, I'm looking at a stock that's trading under $6. And today,it's showing signs of a climb -- so I wouldn't wait on this opportunity.

Just let me give you the bare bones of its business and a nod from avery smart billionaire investor who knows tough markets.

The company's secret is that it doesn't drill for a drop of oil and itdoesn't frack a single foot of shale gas. What it does is keep compa-nies who do at its mercy.

Atlas Pipeline Partners (APL:nyse) owns 1,600 miles of pipelineconnected to nearly 6,000 wells and is adding over 800 new wells peryear in Appalachia. It also operates a growing interstate pipeline sys-tem in the Fayetteville Shale. Plus, it has a great deal with one of the

most active drillers in America: Atlas Energy. Every well that AtlaEnergy drills has to be connected to Atlas Pipeline's system.

These are low-risk assets. Now let's talk dividend. Since 2000, APL'average dividend increase clocked in at 7 cents a year. A plump yeaoffered a 107% increase. While it's true that 2008 was a tough year fonatural gas, NGLs (APL's primary product) are up 50% from theiDecember lows. Aside from price recovery, there's another catalyst fodividend growth. Given the prime location of its pipelines inAppalachia, you have every reason to expect an increased dividendpayout down the road.

War horse Leon Cooperman, shares my interest in APL. He is one othe great living investors. At a recent Manhattan value investors' conference, Cooperman confessed, "This is the most difficult environment I've lived through. And I've been doing this for 41 years."

But when he got to talking about getting 20%-plus onyour money with APL, he had this to say: "At my age, it'better than sex, but that's just me."

Why does he think Atlas is on sale? Thank collapsinghedge funds the most. These guys have been forced tosell even their best positions to cover losses in otherareas.

Cooperman thinks this stock is worth $46 easily. My original estimatewas $48. That's nine times what it trades at today. So why not consider a stock trading at so steep a discount to book?

Don't forget the great yield -- that's poised to increase. Even if thadividend stays right where it was last quarter, you could still make backtoday's investment in under four years -- just through the dividendalone.

Recommendation: Buy Atlas Pipeline Partners (APL: NYSE).

Sign up for The Daily Reckoning FREE e-letter today and receive access to aexclusive special report: "The "Personal Bailout Plan" That Could Rescue You

Retirement - and Save America at the Same Time"! You'll get a daily e-maialert, late-breaking market analysis, special reports and a broad range of investment ideas from leading thinkers, writers and market analysts from around thworld. See why Bill Bonner, Addison Wig gin, Chris Mayer, and other welregarded Daily Reckoning editors have been engaging readers daily since 1999

by Addison Wiggin

Atlas Pipeline Partners

Addison Wiggin

APLNYSE:

Atlas PipelinePartners

T H E D A I L Y R E C K O N I N G
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4/14

Famed investor Warren Buffettmade a telling remark on thekind of returns he hopes to

achieve in today's tough markets:"We would be very happy if weearned +10%, pre-tax," he toldshareholders at BerkshireHathaway's (NYSE: BRK-B) annualmeeting last May. Co-ChairmanCharlie Munger quickly concurred,"You can take what Warren said tothe bank... and I suggest you adopt

the same attitude."

Well, my recommended security for this market bests Warren Buffett'sbenchmark. It offers secure yields of better than 16%. And we domean secure -- as in legal obligation.

Although this security trades like a stock every day on the New YorkStock Exchange, it's actually a bond, not a stock. Thatmeans your quarterly interest payments have top claimon the company's assets, ahead of any common or pre-ferred share dividends if the company runs into trouble.

That kind of security is comforting in today's turbulenttimes, but it's hardly necessary for America's sixth-biggest wireless firm. In fact, credit rating agency Standard

& Poor's is so confident in this firm's financial position, it just upgrad-ed the company's credit quality to investment grade "with positive out-look," meaning the rating could be raised in one to three years.

The upgrade and positive outlook mean that any such bonds the com-pany may issue in the future will most likely offer a lower interest ratethan this high-yielding security. That's because today's featured securi-ty was issued in 2002, when the company was considered higher riskand needed to offer a higher rate in return.

Consider, too, that this security is now trading at around a -19% dis-count from its $25 par value. It matures in 24 years and can be calledat any time. Either way, sooner or later you will be getting back $25 pershare plus any unpaid interest. Meanwhile, you'll be paid amply to wait.

If this all sounds too good to be true, read on and decide for your-self...

Snapshot: These exchange-traded notes were issued in 2002 byregional wireless operator U.S. Cellular (NYSE: USM). The compa-ny is the sixth-largest wireless carrier in the country by number of cus-tomers. Its wireless networks serve 6.2 million customers, for an esti-mated 3% share of the U.S. wireless market. Headquartered inChicago, the telecom carrier focuses on smaller regional markets main-ly in the Midwest, including Illinois, Indiana, Iowa, and Wisconsin.

Wireless services account for about 93% of revenues, while equipment sales contribute the balance. Roaming revenues from other wireless carriers using USM's networks provide a 7% chunk of the company's wireless service revenue. U.S. Cellular is a subsidiary of rurafixed-line phone operator Telephone & Data Systems (NYSE: TDS)which owns 80.8% of the company.

Performance: U.S. Cellular has seen earnings grow an average o+50.2% a year over the past three years through December 31, 2007

U.S. Cellular has a strong balance sheet, which is supported by funding from parent company TDS. Its debtto-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio, a measure of leverage, iless than 1.0. Meanwhile, debt is only around 20% ototal capitalization. Both those measures are well belowits regional wireless peers. Rival Leap Wireless (NasdaqLEAP), for example, carries a debt-to-EBITDA ratio o

6.4 times, and debt is 60% of total capitalization.

4

U.S. Cellular 8.75% Senior Notes due 11/1/2032 (NYSE: UZG, $20.25)by Nilus Mattive

UZGNYSE:

U.S. Cellular Notes

Carla Pasternak

H I G H - Y I E L D I N V E S T I N G

Key Statistics:

Security Type: Exchange-Traded Debt

Annual Dividend: $2.1875

Dividend Yield: 10.8%

Frequency: Quarterly

Credit Rating: Baa3/BBB-


5/14

If the gains gold has made areany indicator of profits tocome, I think SPDR Gold

Shares (NYSE:GLD) is the gold-en ticket investors need to exposetheir portfolio to the safety andprofits of the precious yellowmetal.

Gold has been one of the best per-forming investments in a downmarket, and was one of the only

investments to post gains in 2008, proving to be an excellent safe

haven. Like U.S. Treasuries, the price of gold has rallied as investorsfled equities and bonds, and sought safe investments. SPDR GoldShares is an ETF that trades at one-tenth the price of an ounce ofgold, and tracks the price movement of the commodity.

The metal has most notably been on the rise, jumping31% to $923 an ounce from the recent Nov. 13 low of$700 an ounce. As I mentioned in my weekly letter onMonday, I had been considering buying the Market Vectors Gold Miners Index (NYSE:GDX). However,this higher-risk, higher-reward investment has soaredan astounding 74% from a recent Oct. 27 low, makingit much riskier than GLD.

Through SPDR Gold Shares, I intend to take a cautious approach togaining exposure to gold, given the big gains that the ETF hasalready experienced in the last few months. I plan to start with asmall position of $2,000, and may add to the position in the future.I don't intend to have more than 5% of my portfolio invested in thisposition at any time.

For any Goldfingers out there, investing in SPDR Gold Shares ismuch like buying gold bars or coins, minus the headache of havingto hold them in a safe or hide them under your bed. Using the fund,you have the added flexibility of being able to buy or sell at any time. The fund is backed by physical gold reserves, giving investors thesecurity of buying the real commodity.

Many commodity prices dropped in 2008, including gold, which fellbriefly in October and November of 2008. Don't let this briefdecline fool you though - this is a long-term bull market for com-modities, and gold will continue to perform well. As investors ditchlow-yield U.S. Treasuries and seek other inflation-protected invest-ments that can provide safety, gold appears to be the perfect invest-ment.

The reckless monetary policy of the U.S. Federal Reserve will havits day of reckoning in the future, and investors who are long-goldand have investments that aren't tied to the greenback will be smiling in the years to come.

Let's face it: once the economy picks up, deflation will change intoinflation. And hyper-inflation isn't far off, as a result of a U.S. government that continues to spend aggressively and issue more currency in a thus far failed attempt to jumpstart the U.S. economy. Thianti-inflation investment allows investors in the United States todiversify out of the dollar and own an asset backed by a physicacommodity that is likely to see greater demand with limited additional supply coming on line in the coming years.

I plan to begin with a small position, which I may add to if I see breakout in the price of gold. I'll also look to add to my position iprices consolidate, which I think is quite possible given the recen

jump in price.

Ian Wyatt is on a mission to recover investment losses suffered in2008 and then some. His strategy will be to take substantial

positions in "safe" investments like income and dividend stocks,bond funds, and other lower risk investments with a long termapproach while also pursuing more aggressive investments forshort gains. Join him as he turns $100,000 of his own moneyinto $250,000 in only five years.

5

by Ian Wyatt

Strike Gold with SPDR Gold Shares (GLD)

Ian Wyatt

GLDNYSE:

SPDR Gold Shares

I A N W Y A T T ' S R E C O V E R Y P O R T F O L I O
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7/14

At Schaeffer's InvestmentResearch, we employ a 3-tiered analysis approach

known as Expectational Analysis(EA) that was created more than 2decades ago. EA utilizes traditionalmethods of fundamental and tech-nical analysis and combines thesewith a third, crucial look at investorsentiment. It is this third layer ofanalysis that provides a critical edge

in selecting stock and option plays. Both anecdotal and quantifiablemeasures of investor sentiment provide a window into how the

investing crowd perceives reality. These perceptions serve as power-ful contrarian indicators, as the crowd tends to move as a herd andis, to paraphrase the venerable contrarian Humphrey Neill, "rightduring the trend but wrong at both ends." A look intothe psyche of the collective investing masses, whilealso taking into account important technical and fun-damental variables, can offer a reliable recipe for trad-ing success.

The latest opportunity found by the EA methodologyis Abercrombie & Fitch (ANF). According toHoover's, Abercrombie & Fitch (A&F) sells upscalemen's, women's, and kids' casual clothes and accessories. The firm

has 1,000-plus stores in North America (mostly in malls) and alsosells via its catalog and online. It targets college students, and hascome under fire for some of its ad campaigns, as well as for some ofits short-run products. The company also runs a fast-growing chainof some 450 teen stores called Hollister Co., and a chain targeted atboys and girls ages 7 to 14 called abercrombie. RUEHL, aGreenwich Village-inspired concept for the post-college set, debutedin 2004.

In early February, earnings rolled in from the trendy retailer, surpass-ing the consensus estimate. For the fourth quarter, the companyposted a profit of $68.4 million, or 78 cents per share, compared toits year-ago profit of $216.8 million, or $2.40 per share. Excludingimpairment charges and costs tied to a new employment agreementwith its CEO, the retailer boasted a profit of $1.10 per share, beat-ing the Street estimate for a profit of $1.01. Sales fell 19% to $998million, said the company. ANF stated that it would not issue anearnings forecast for fiscal 2009, citing a tough year ahead. The com-pany said it expects a difficult selling environment to continue.Abercrombie forecasts capital expenditures of $165 million to $175million in fiscal 2009, a major portion of which is tied to new storesand remodeling.

Technically speaking, the security gapped sharply higher on the earn-ings report, gaining more than 10% amid broad market weakness.

What's more, this significant bullish gap has placed the equity aboveresistance at its 80-day moving average. This short-term trendline

had capped the shares' recent rally attempts.

As followers of the EA method, we ideally like to sesolid price action persist against a backdrop of skepticism, as this implies that there could be additionamoney waiting on the sidelines that hasn't yet beencommitted to the bullish cause. It seems as thoughthere is plenty of room on the bullish ANF bandwagon. Options players have leveled some heavy bearishbets against the stock in an attempt to call a top to it

uptrend. The Schaeffer's put/call open interest ratiofor ANF stands at 1.28, as put open interest outweigh

call open interest among near-term options. This reading is alsohigher than two-thirds of those taken during the past year, indicating extreme skepticism among short-term options speculators.

Meanwhile, Wall Street has yet to fully jump on this outperformingsecurity. According to the latest data from Zacks, 14 of the 19 analysts following ANF rate it a "hold" or worse. Any upgrades fromthese remaining holdouts could help to propel the shares higher during the long term.

Overall, this combination of pessimistic sentiment against thestock's backdrop of improving earnings and strong technicals habullish implications from a contrarian perspective. As investorunwind their bearish bets and jump on the stock's bandwagon, theywill help to push the security even higher.

Bernie Schaeffers FREE Daily Bulletin - your one daily source for key mar-ket insight, plus stock recommendations and sector analysis - all in an organ-

ized, easy-to-follow format. Delivered straight to your email inbox before the

market opens. Yours FREE for 90 days.

B E R N I E S C H A E F F E R ' S F R E E D A I L Y B U L L E T I N

Abercrombie & Fitchby Bernie Schaeffer

Bernie Schaeffer

ANF

NYSE:

Abercrombie &

Fitch

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8/14

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S M A L L C A P I N V E S T O R P R O

The way I see it, even throughcurrent market malaise, SXCHealth Solutions

(Nasdaq:SXCI) is standing firm with its two corporate feet firmlyplanted in two complementary are-nas: it's providing pharmacy benefitsmanagement services and developingthe technology engine needed tokeep costs under control.

Bringing down health-care costsremains a hot-button issue, as the

baby boomers reach retirement age, Medicaid and Medicare grow, anddrug costs continue to rise.

SXC Health, formerly known as Systems Xcellence, is a niche playerin the benefits marketplace. Headquartered outside Chicago, SXCHealth is a provider of health-care information technology solutionsand services to providers, payers and other participantsin the pharmaceutical supply chain in North America.

SXC Health is redefining pharmacy benefit management(PBM) by providing a broad range of pharmacy spendmanagement solutions and information technologycapabilities. The company is a leader in delivering aninnovative mix of market expertise, information tech-

nology, clinical capability, scale of operations, mail order and specialtypharmacy offerings to a wide variety of healthcare payor organizationsincluding health plans, Medicare, managed and fee-for-service stateMedicaid plans, long-term care facilities, unions, third-party adminis-trators and self-insured employers. In essence, the company's servicesallow customers to make good decisions and save money.

SXC Health's informedRx business sells management services mostlyto government and universities, while its Healthcare IT Group devel-ops the technology behind the services and provides a revenue streamvia software licensing.

SXC's recent acquisition of National Medical Health Card Systemsexpanded its informedRx services, which is a broad, flexible suite of

la carte PBM services, which provide flexible and cost-effective alter-native to traditional PBM offerings. The acquisition is an essential stepin SXC Health's strategic evolution toward being a leader in pharma-cy spend management, and gives the company's customers the chanceto pick and choose what services are right for them. SXC Health is theonly company in the PBM space to offer its clients such a broad port-folio of solutions.

SXC Health's technology touches close to 1 in every 4 of the estimated 3.5 billion prescriptions written in the United States annually - aplus considering that the health-care sector and health-care IT industry will outperform the market for the next few years.

The company also stands to benefit from demographic and politicatrends, in that the population is aging and pharmaceutical companiewill need SXC's products and services. Also, the new administratiohas vowed to digitize the health-care system. Both of these trends wilpositively influence SXC Health's earnings.

In the quarter ended Sept. 30, 2008 earnings were $3.5 million, o$0.15 per share, up from $2.7 million, or $0.12 a year ago. Revenuincreased to $318.1 million from $22.2 million. SXC increased full-yeaEPS guidance to $0.54 to $0.58 a share, from its previous estimate o$0.41 to $0.50. Additionally the company narrowed revenue estimateto $840 to $855 million, from $825 million to $875 million.

We forecast the company will earn $0.59 EPS in 2008 and grow EPS50% in 2009 to $0.88. We expect revenues will be $854million this year and increase 52% to $1.3 billion nexyear. The company has made brilliant acquisitions inrecent years, which have made it one of the primaryplayers in pharmacy spend management services andinformation technology solutions.

The company was recently trading at 32 times curren

year EPS and 22 times forward EPS. These are high multiples in thcurrent environment, but SXCI shares are worth every penny. In factshares are worth more. We estimate fair value to be $28 based on EPand revenue growth projections.

Ian Wyatt started his first newsletter service in the depths of the 2001-02 recession. With dot coms in the dumps, Wyatt brought his subscribers amazing stockwinners like TRLG (+2,200%), JCOM (+746%) and RATE (+705%)Today's market decline means that small cap growth stocks are on sale again. JoiIan Wyatt's new SmallCapInvestor PRO service and find out what he's buying thitime...

by Ian Wyatt

Redefining Pharmacy Benefit Managment

Ian Wyatt

SXCINASDAQ:

SXC HealthSolutions
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9/14


10/14

All Americans are changingtheir spending habits as theeconomic recession hits

home. We're adjusting to the idea ofdriving the car an extra year or more,to buying clothes at Sears instead ofJoseph A Banks, that sort of thing.

And while our change in spendinghabits hurts some, it helps others. Asinvestors, we need to focus on thosecompanies well positioned to profitfrom these changes. Those companies

well positioned to profit from the fundamental changes in the American

lifestyle.

One of the major changes that we're seeing now is a turn by theAmerican consumer to private label brand foods to feed their family. Asa result, one of the big beneficiaries of this move isAmerican ItalianPasta Company (AIPC), the nation's largest manufacturerof dry pasta. Sales are booming. And so is the stock.

What makes American Italian Pasts so interesting is thatit's booming because of several trends. The first is theaforementioned transition to private label foods. A secondfavorable trend is that consumers are moving away from ameat and potatoes diet to something less expensive, likepasta. And, finally, the low-carb "Atkins diet" fad is now history.

Even more amazing in the recession of 2009, American Italian Pasta hasactually been able to raise their prices while sales increased! Sales of pastaproducts in the United States rose 5% last year to $6.4 billion. Duringthat time, American Italian was able to raise prices faster than their costsincreased.

For the first quarter 2009, American Italian Pasta earned a whopping$1.23 EPS, up from 2008's first quarter EPS of 43 cents. Retail revenuefor the quarter rose 56% to $136.1 million, while cost of goods sold roseonly 40%. Overall volume for the company was up some 13%.

From a technical standpoint, American Italian Pasta seems to defy theoverall market, making new highs as recently as February 25th. The com-pany is a newly listed issue on the NASDAQ, beginning trading there on

November 14, 2008. The company is trading above its 50-day movingaverage and gapped higher on February 12th after releasing its first-quar-ter earnings. Since then, the stock hasn't looked back.

With no upside resistance to speak of, the critical technical support levelcomes in the gap between $27.00 and $29.19. Given the strong earnings

report on February 11th, I wouldn't expect the stock to violate this gap. Prospects for the company seem verstrong and the company appears able to deliver on thoseprospects.

Pricing power is something almost unheard of in the economic climate of 2009. And that's one of the things thaimpresses me the most about American Italian Pasta - ihas the ability to increase sales, while raising prices.

One other factor that hasn't yet been considered by most analysts,believe, is that the cost of raw ingredients, which had been going up fomost of 2008, are now in retreat.With higher prices already in effect, anfall in cost of goods sold will reflect directly in higher profitability for thcompany.

In summary,with American Italian Pasta, you have a company that's benefiting from multiple trends working in its favor. Fundamentally, the ability to raise prices and not affect sales is amazing. With more American"trading down" their eating habits, this trend to higher sales shows everindication of continuing. And with their raw ingredient prices nowfalling, the company will not have to raise prices in the near future tostimulate growth. Rather, the profits for the second quarter of 2009 wilcome from higher prices already in place, accompanied by falling ingredient prices.

From where I sit, American Italian Pasta Company looks like a rare winner in 2009.

10

by Stephen Rawls

Big Profits from Downsizing

T I P P I N G P O I N T S T O C K

Stephen Rawls

AIPCNASDAQ:

American ItalianPasta Company


11/14

When I began conductingextensive research into thestrategies used by some of

history's greatest investors some 12years ago, one thing quickly becameapparent: Many of these Wall Streetstars, including Peter Lynch, WarrenBuffett, and Benjamin Graham, builttheir fortunes and reputations not byrelying on some sort of investing"sixth sense", but instead by usingapproaches that were mostly or

completely quantitative. They stuck to the numbers, never letting emo-

tion influence their decisions.

That was great news to me. Because of my background in computerscience and artificial intelligence, I was able to develop sophisticatedbut easy-to-use models based on these gurus' quantitative approaches.Today, these models power the research and analysis onmy web site, Validea.com, allowing everyday investors totake advantage of the strategies that some of history'smost successful stock-pickers used. Since I started track-ing them nearly six years ago, portfolios built using eachof my eight original "Guru Strategies" have all signifi-cantly outperformed the market.

For some top picks in today's market, let's turn to my

top-performing strategy -- one that, interestingly, is inspired by what isfar and away the oldest of these methodologies, the approach of thelate, great Benjamin Graham. Known as the "Father of ValueInvesting" -- and the mentor of Warren Buffett -- Graham detailed hisstrategy in his 1949 classic The Intelligent Investor. Six decades later,my conservative Graham-based model is up almost 70 percent sinceits July 2003 inception, while the S&P 500 has fallen more than 22 per-cent. Last year, while the market tumbled close to 40 percent, myGraham-based model sustained well less than half of that decline.

One stock my Graham model is particularly high on right now: Ameron International Corporation (AMN), a California-basedfirm that makes water transmission lines, fiberglass-composite pipe fortransporting oil, and infrastructure-related products like ready-mix

concrete and lighting poles -- just the kind of company that could ben-efit from the federal stimulus package's infrastructure funding.

Having lived through both his own family's fall from financial grace(following his father's death when Benjamin was a young man), and,later, through the Great Depression, it's no surprise that Grahamfocused as much on preserving capital and limiting losses as he did onproducing big gains. He liked stable, conservatively financed compa-nies, not speculative gambles, and Ameron fits the bill. One exampleof why: its strong current ratio of 2.87. Graham used the current ratio(current assets/current liabilities) to get an idea of a company's liquid-ity (and the credit crisis has shown us all how important liquidity is).

Companies with current ratios of at least 2.0 were the type of financially secure, defensive, low-risk plays he liked, and Ameron makes thgrade.

Another way Graham targeted conservative firms was by making surelong-term debt was no greater than net current assets. Ameron hajust $36 million in long-term debt and almost $300 million in net current assets, a great sign.

The other main part of Graham's approach was making sure a stockhad what he termed a "margin of safety" -- that is, its price was lowcompared to his assessment of the intrinsic value of its underlyingbusiness. Stocks with high margins of safety have downside protection

-- they're already selling at a discount compared to their real value, soeven if problems occur and earning power declines a bit, the stock stimight gain ground because it's so undervalued to begin with.

To find undervalued stocks, Graham looked at both the price/earnings ratio (the model I base on his approach requires thegreater of the stock's current P/E or its three-year average P/E to be no greater than 15) and the price/bookratio (which, when multiplied by the P/E, should be nogreater than 22). Ameron's P/E (using the higher threeyear figure) is just 8.2, and its P/B is just 0.99, indicatinthat the stock is a great value.

In addition to Ameron, here are a couple more of m

Graham model's current favorites:

Schnitzer Steel Industries (SCHN): Hammered when commoditprices began to tumble last summer, this Oregon-based firm has mada big rebound since late November, and my Graham model thinks ihas a lot more room to grow. It has a current ratio of 3.2, just $106.million in long-term debt vs. $338.5 million in net current assets, andbargain-level P/E and P/B ratios of 5.8 and 1.01, respectively.

National Presto Industries (NPK): Talk about an eclectic group obusiness segments. This Wisconsin-based firm's housewares divisionmakes small appliances and pressure cookers; its defense segmenmakes ammunition, fuses, and cartridge cases; and its absorbent products division makes adult incontinence products and baby diapers. It

fundamentals are exceptional -- current ratio of 5.23, P/E ratio o14.5, P/B ratio of 1.49 -- and, the firm has no long-term debt.

11

Looking for Safe Stocks? Try Channeling Ben Grahamby John Reese

John Reese

AMNNYSE:

AmeronInternationalCorporation

V A L I D E A


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12

When I recently discoveredthe Hussman StrategicGrowth fund, it was love at

first sight. Hussman acts like a hedgefund, providing the fund managersmuch flexibility in the investmentinstruments and strategies utilized tocapitalize on rapidly changing marketslike those we are currently experienc-ing. Manager John Hussman's disci-plined strategy has navigated the mutu-al fund toward calmer waters amid

choppy market conditions, a testament to the fund's ability to achieve

remarkable performance in down markets.

Although Hussman receives the advice of key personnel on the fund'sboard of trustees and at Hussman Econometrics, this mutual funddepends heavily on Hussman himself. He also invests all of his personalliquid assets (outside of cash and money market accounts)in his two funds, clearly aligning his personal interests withthose of fund shareholders. Hussman Strategic Growthinvests primarily in U.S. stocks with the objective of long-term capital appreciation. It currently has 116 long hold-ings that include the likes of Johnson & Johnson(NYSE:JNJ), Nike, Inc. (NYSE:NKE ), Amazon.com,Inc. (Nasdaq:AMZN), Coca-Cola (NYSE:KO) and BestBuy Co. (NYSE:BBY). Hussman goes long on individual

positions, and can leverage using equity call options. Ninety percent ofthe fund's net assets are tied up in stocks while the remaining 10% is sit-ting in cash.

Hussman was down only 9% in 2008, a performance that was the envyof most fund managers, especially in light of the 37% drop in the S&P500. In the previous bear markets of 2001 and 2002, the fund was up awhopping 14% in each of those years. Because the fund is so risk-averse,its short-term track record may limp in bullish environments, but its long-term performance is where investors begin to see solid profits. Given thecurrent state of the market, and the fact that my outlook calls for a range-bound and volatile stock market in 2009, Hussman Strategic Growthfund is a solid place to have capital invested.

John Hussman develops a risk versus reward profile for the current market climate, identifying economic trends and valuing individual stockbased on their expected streams of cash flow. For much of the pasdecade, Hussman has considered most stocks overvalued and did nothink they were providing enough reward given their high level of riskTo preserve capital, he hedged the portfolio against market risk by shoring indexes such as the S&P 100. As a result, the fund has been fairluncorrelated to the whims of the market and has been shielded from thheavy losses many funds have faced.

Since its July 2000 inception, the fund's 8.9% annualized return has oupaced the S&P 500, which lost 4.4% annually over the same periodPerformance in 2009 appears to be holding up, with year-to-date return

of 0.25% versus a loss of 8% for the S&P 500 index. Morningstar callHussman "one of the steadiest and cheapest options in the fledglinlong-short category," and gives the fund a 3-star rating.

Hussman's claimed approach of "investing for long-term returns whilmanaging risk" is in perfect alignment with my aggressivapproach to conservative investing. I, too, aim to finopportunities for long-term capital appreciation, while limiting downside risk through portfolio diversification anaggressive risk management. The fund is currently taking very conservative approach to equities, which makes sensgiven the performance last year. With the bleak prospectfor global growth in 2009, this fund should perform well ihorizontal or down markets, making it a nice fit within th

equity portion of my Recovery Portfolio. Additionally, the fund's flexibiity should allow it to perform nicely once stocks begin their recovery.

Ian Wyatt is on a mission to recover investment losses suffered in 2008 and thensome. His strategy will be to take substantial positions in "safe" investments likincome and dividend stocks, bond funds, and other lower risk investments with along term approach while also pursuing more aggressive investments for shortgains. Join him as he turns $100,000 of his own money into $250,000 in only five years.

by Ian Wyatt

Hedged Investing with Hussman Strategic Growth

Ian Wyatt

HSGFX

Hussman StrategicGrowth

I A N W Y A T T ' S R E C O V E R Y P O R T F O L I O
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