How to Invest During America's Financial Crisis: Strategy #1 - Cash

When it comes right down to it, there are really only two ways to look at the current condition of the American and the World's financial markets. You are either looking at it with fear and pessimism or with patience and optimism. If you have a few years to ride it out, I think that it is possible to take advantage of today's beaten down stock prices. It is important to understand that I am talking about choosing the best-of-the-best companies. Companies that you believe will be able to ride out this dramatic and very complicated scenario.

Where the World and America's financial crisis is huge, with many factors affecting it, I have decided to simplify my strategies and worries. I have decided that the best strategy right now is to only invest in stocks as a "long" investment. Long meaning, to buy low (now while the stock prices are low) and sell high. I do not plan on selling for a minimum of five years.

Shorting stock in this time of crisis may make you more money immediately, yet it really does nothing to help pull this country out of the down trend it is following, and I do feel that even my small portfolio (when combined with all the other small portfolios out there) can, if not make a difference, help in some small way.

In this time of companies that can't raise capital due to the current condition of the credit markets, I have learned to emphasize a rule that I have always looked at, but not put as a primary factor in choosing an investment. Instead of asking how much debt a company has, I decided that it would be probable that companies with a high cash balance on their balance sheet would be the last companies standing in the current battle ensuing on Wall Street.

Using Scottrade's Stock Screener, I created a search for stocks that had a little or zero debt to capital ratio using the following criteria only:

• Market Segment: Large Cap (companies with a market capitalization value of more than $10 billion).
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• Fundamentals: Debt to Total Capital ratio (Debt/Cap) less than 5%.
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• Search included: NYSE, NASDAQ and AMEX.

This search produced a total of 32 companies. 16 of which had a Debt/Capital ratio of 0%. You will probably not be surprised to learn that seven of these companies were in the technology sector. Two others, eBay Inc. (EBAY) and Yahoo! (YHOO) are also part of these 16 companies (service sector). Both sectors are separated from the lending/housing crisis.

It makes sense to me that companies with a lot of cash and are in a sector that is not directly associated with the financial, insurance, housing/lending or banking industries in the current market condition may be a good place to find gems to further analyze.

I firmly believe that the companies that require or have very little debt and have cash reserves will be the companies that not only survive, but eventually thrive, in the new economy that emerges from the current crisis. From these companies, I recommend completing additional fundamental analysis, choosing only the strongest companies. You can read more about my investment strategy in "A Mission Statement for a Solid Stock Trading Strategy".