For instance, check out this great looking company:

- It appears to be a deep value on the price-to-sales per share scale: 0.63

- Its P/E ratio last year was a sweet 9, well below its mid-range usual around 12 and its frequent values of 14-16

- What’s more this has been a growth stock despite its huge size, with a 5-year average annual sales growth of 33%. Net income grew 329% in five years.

- It was very successful and rewarded shareholders well with a return on equity above 20% the past three years and above 16% the past five years

- It won respect among the pros. S&P rated its debt quality A and gave its stock a three-star hold rating, down from a recent 4-star buy. Four firms rated it a strong buy, four more firms called it a buy/hold, 10 a hold, and none called it a sell.

Hope you didn’t buy Lehman Brothers (LEH). Because that’s who these great stats belong to.

Things looked about as good at Countrywide, Citigroup (C), Washington Mutual (WM), Wachovia (WB)—until they each rolled over and showed the ugly bellies of their business.

People’s methods for choosing a stock run from the mindlessly emotional to the supremely analytical. And today’s banking crisis is making mindless dart-throwing look good. It certainly throws doubt on the usefulness of mere numbers.

Isn’t this a comeuppance? As a value investor, I have always counted heavily on numbers. I always look at a 10-year record of earnings, sales, profit margins, tax rates, etc. if possible. At least five years. And bank numbers have been darned good these past few years.

In fact, I had one of today’s stinkers, Washington Mutual, in Fleet Street Letter (Alan Myers made the astute pick) back in the early 2000s just as it was beginning to break out of its regional mold. It did great, back then.

I’ve said nice things about American International Group (AIG) in the past, too. Also Wachovia, which still has a great economics department. And just last year, I thought that National City Corp had made a smart, early exit of the subprime mortgage business at a large profit. This year’s tripling in loan loss provisions it hadn’t yet sold were not what I expected.

Oh yes, I’ve made mistakes on banking stocks. I recommended Oriental Financial Group in Rising Tide a couple of years ago only to watch it go down after a bit. That pick looks pretty foxy in retrospect, though, because after the drop, OFG has been coming back. It’s up 43% this year and has doubled since its 2007 low.

Another bank I admired and recommended several times in years past was Popular Inc. (Banco Popular), though not in the last five years, thank goodness. And part of what I liked was its mortgage business of all things. Mortgages have traditionally been regarded as higher-quality loans than consumer revolving credit.

And I like East West Bancorp (EWBC) again, too. I’ve often been a fan of Zion’s, as well. And today I’m taking a closer look at both of these stocks.But you have to admit, bank stocks are downright scary, and I can see why investors don’t want any of them right now…The currently failing institutions were supposed to be blue chips. They were bastions of security in times past, stalwarts. Some are even in the business of advising people on which stocks to buy, for heavens sakes! All are supposedly in the business of telling people what to do with their money.When it comes to getting fleeced, all I can say is that, at least roulette croupiers only provide you with an opportunity to go broke, they don’t tell anyone it’s smart to bet it all on black.

So how do you miss a meltdown like this? Buying banks and brokers with decades-old track records of success was not exactly high speculation on the order of dot-com stocks in 1999.

This is where the other part of a value analysis comes in—business is not just numbers. Those numbers we look at, like P/E ratios and profit margins, are mere artifacts, the discarded potshards on the trash heap of lost corporate civilizations. The slime trail of the slug if you like a more picturesque metaphor.

Bottom line: the bottom line is not a number. Business is also mental—it involves planning, execution, vision, understanding, and all that comes down to strategy.

The reason I made a “bad” choice like Oriental and choices that worked out at the time, like East West, Popular and the old Washington Mutual had to do with the strategy these banks embraced. All banks make loans, sell CDs and so on. But East West has a special niche I like, stable, highly community-centered Chinese-American clientele and growing export-import businesses linked to Asia. Oriental’s different strategy was seeking out the newly emerging middle class in Puerto Rico and courting the un-banked Hispanic population in southern states. Washington Mutual was making a transition from a local savings and loan to a national mortgage bank (well, it seemed like a good idea back in the early years of this decade, and it was at the time).

There were some tell-tale weaknesses in most of today’s troubled financial stocks for those who can read deeply into financial reports, but strategy explains how a company gets where it’s going—and gives you a cue as to how smart the plan is. Washington Mutual, for instance, took a good idea too far and became overweighted in one direction, a reason I did not recommend it in recent years. (Though, to be honest, I never told anyone to avoid it either.)

This market is going to offer hundreds of cheap stocks. But only some of them will be values. When you are through looking at the numbers, scrutinize its style of business. If you can’t identify a special niche or some edge it has, think twice before investing.

Source: Balance Sheets and Valuations: By The Numbers Alone—You Can Hardly Tell the Dog from the Fleas—You Need This One Extra Key

Last Thursday, a company called Popular, Inc. – a 115-year-old bank holding company – slashed its quarterly dividend from 16 cents to 8 cents.

In itself, that’s a boring statistic.

But as part of a trend – it’s a very big deal.

Popular, Inc. (NASDAQ:BPOP) just happened to be the 142nd company to cut its dividends in 2008.
That’s a new record. And we still have nearly four months left to go.

The old record of 141 dividend cuts was set 77 years ago. Way back in 1931 – the year we adopted the Star Spangled Banner as our national anthem. It was the year that gave us the Empire State Building, Mickey Mantle, and Rupert Murdoch. And the Great Depression…

Clearly, it’s a bad sign when hundreds of companies choose to slash their shareholders’ income – all at once.

And we’re not talking chump change either. An estimated $21 billion has been lost to dividend cuts this year. If this pace keeps up – we’ll see over $30 billion evaporate, right before our eyes by the new year.

Investors are Under Attack

Stockholders are facing a “death by 213 cuts.” And it doesn’t matter whether you’re a fixed income investor – or a day trader – you are in danger.

Through the years, dividends have been one of our steady friends. They’ve supported us through the ups and downs of the market and beaten back the steady advance of inflation.
Speaking of inflation, since 2000, the Dow has only managed to climb 2.6% but inflation is up 30.6% That means stock investors – by and large – have lost 28% in real terms.

And now, a significant part of their profits – dividends – is being clawed back by desperate boards and CEOs.

At the same time, home prices are plunging…food and fuel bills are soaring…and more banks are failing every month.

But how bad is it, really?

Citigroup Values Toilet Paper More Than Dividends?

Here’s an interesting question:

What does Citigroup (NYSE:C) CEO Vikram Pandit value more – the enrichment of his shareholders – or the quality of his toilet paper?

Just days ago, an internal memo leaked to the press. It revealed the desperate cost-cutting strategies now being enforced at 399 Park Avenue.

According to the memo, Citigroup employees can no longer make unlimited color photocopies, hold offsite meetings, fire-up new BlackBerries or make personal phone calls.

In a separate – but related – commentary, one anonymous Citigroup employee told the financial blog, Dealbreaker, that the firm had taken far more serious action. They’re cutting the company toilet paper back from two-ply to one.

Just another sign that all is NOT well at the lumbering financial giant.

Pandit’s alleged TP snub gives us some insight into his priorities. The besieged CEO (along with the board) cut Citigroup’s quarterly dividend from 54 cents to 32 cents in January. That was seven months before he considered downgrading their more private holdings.

Some Good News, for a Change: 10% to 25% Guaranteed Cash Dividends

Last week I bumped into David Newman, our former membership director. And I told him what I just told you. I showed him piles of statistics and tales of woe. And you know what? He said three little words that floored me:

“I don’t care.”

So I stepped into his office for ten minutes and he told me why.

And get this: As scary as this stock market can be, and as much as we’ve slogged from peak to trough, I came out of that office feeling a whole lot better.

I don’t want to spoil the surprise, but he emailed me his new report that explains everything.

You can read it too – absolutely free. Just click here, and you’ll know the truth.
I hope it helps you as much as it helped me.

Source: Death by 213 Cuts