Now trading at $90,560, Berkshire Hathaway class A shares (NYSE: BRK.A) have plunged 60% from their 2007 peak of $149,000. According to Barron’s:

In the past decade, the stock has traded for an average of 1.6 to 1.7 times book value, a measure of shareholder equity per share. The current price-to-book ratio is near the low reached in early 2000, when Berkshire’s stock bottomed at about $40,000.

The turmoil in the financial markets has seriously dented confidence in Berkshire. And some would say with good reason. In March, Berkshire made a loss of about $5 billion on long-term put options on equity indexes – just as share prices were beginning to take off again. And the company has also suffered losses on stakes in  ConocoPhillips and American Express.

But as we’ve been at pains to stress here at Notes, the markets are topsy-turvy right now. And the recent rally has favored what Mr Market has seen as “offensive” stocks (read junk stocks: low quality, debt laden and consumer sensitive) over so-called “defensive” stocks such as Berkshire – those with strong cash positions and low debt levels.

Berkshire class A shares could top $110,000 in the next year, according to Barron’s. This would put them at roughly 1.4 times Barron’s estimate of book value in 12 months time: $80,000 a share. Even better values are Berkshire’s class B shares (NYSE: BRK.B):

Berkshire’s class B shares (BRK-B), worth 1/30th of the A shares, fetch about $2,750 each. The B shares look like a better buy than the A shares, because they sell at a 3% discount to their theoretical value. But the discount has persisted for some time, and could continue, as the B shares can’t be converted into A shares.

Rahm Emanuel is right about one thing: this crisis is an opportunity. Buying Berkshire shares now could be one of the best value plays in a generation.

Investors snapped up shares of technology bellwethers a day after the semiconductor index <.SOXX> fell for a fifth straight day. Apple Inc led the Nasdaq higher, climbing 1.8 percent to $121.59, while the semiconductor index gained nearly 2 percent.

Stocks in defensive sectors such as consumer staples and health care also advanced, with Coca-Cola Co (KO) up 1.6 percent to $44.34 and Pfizer Inc adding 0.8 percent to $15.39.

“What we’ve seen the past three days is not that money’s leaving the market, but just flowing in that (defensive) direction and trying to find the better deal,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

The Dow Jones industrial average <.DJI> was up 22.86 points, or 0.28 percent, at 8,307.75. The Standard & Poor’s 500 Index <.SPX> added 3.23 points, or 0.37 percent, at 887.15. The Nasdaq Composite Index <.IXIC> gained 12.78 points, or 0.77 percent, at 1,676.97.

Data showed the number of U.S. workers filing new claims for jobless benefits rose to 637,000 and was more than expected in the latest week, according to government data, pushed up by plant shutdowns related to automaker Chrysler’s bankruptcy.

In another report, the Labor Department said prices received by U.S. producers rose at a brisk pace in April, driven by a surge in food costs.

May 14 (Reuters)

This from Taipan Daily:

It’s certainly no challenge finding stocks under $10 these days. Unfortunately, many of them used to trade for at least twice that much. To make matters worse, in most circumstances, these sad sacks deserve this ignominious fate.

Take your pick: Homebuilders who put up pasteboard shacks alongside highway interchanges and called them “mini-mansions”… banks that sold mortgages to undocumented workers… brokerage houses that bought and sold worthless bonds… retailers who based their business model on the idea that folks could spend twice what they earned forever… credit card companies that figured if they could just charge enough interest, it wouldn’t matter if no one paid off the principle…

Deadbeats, crooks and idiots one and all, each one thoroughly deserving of the punishment the recession has doled out.

Deeper and Longer

Because it is a recession, and not one of those quickie two-quarter deals like we saw around the turn of the century. No, this bout is showing every sign of running deeper and lasting a good bit longer.

As recently as last July, the Pollyannas at the Federal Reserve were still calling for 3% growth per annum as far as the eye could see. Now they have done a complete 180-degree turnaround. Their current estimate for GDP growth in 2008 is now between 0.3% and just plain zero. For 2009, they are now calling for a possible loss of 1.1%.

And they are the optimists in the house. At a recent meeting of Major League Baseball team owners (oh, the sordid places you have go to find the truth!), former Fed Chairman Paul Volcker warned that the recession was a greater threat than had been previously understood, and would in all probability impact even this venerable institution’s bottom line.

Unemployment Scrapes 10%

What threatens to empty baseball’s bleachers? Employers cut another 533,000 jobs in November. Jobless claims haven’t been this high since July 1992, when the U.S. had already been in recession for two quarters. Worse yet, the number of workers still collecting unemployment benefits has risen to over 4 million and has held at this level for three consecutive weeks.

As the economy grinds to a halt, state and local governments are staring at massive deficits totaling some $40 billion. New York and California have already approached Washington D.C. for bailouts that could dwarf anything we have paid to Wall Street.

While annual numbers are not in yet, New York is already complaining of a massive shortfall, with forward deficits through 2010 as high as $14 billion. Nor is the Empire State alone in its misery: just across the bridge and tunnels, New Jersey is already logged in a $258 million deficit in the first four months of the new fiscal year.

Cities Shut Down

As tax receipts collapse, states and cities are shutting down programs willy-nilly: California has already laid off 10,000 part-time and temporary state workers… Ohio is closing two mental health facilities… Rhode Island can’t afford to help out pensioners with discounted electricity and heating oil – just as temperatures dive below freezing… New Jersey is welching on promised property tax breaks… Georgia is closing library branches and denying fire departments new fire trucks.

Does such a dismal forecast as this mean that there are no opportunities about? Nonsense! In bad times, those with both cash and nerve can rule the roost. For example, this very breakdown in both employment and public services offers us a unique opportunity.

When times get this hard, crime skyrockets. And yet local government can do very little to prevent or protect this inevitable wave of both personal and property crime. At best, they can simply record the victims’ stories for the next begging trip to Washington.

Defend Yourself

However, there are private companies that are quite willing to provide citizens with the means of protecting themselves, their families and their property. For example, TASER International Inc. (Nasdaq:TASR) is well known for its easy-to-operate electrical stun devices.

TASER offers two distinct product lines: one for law enforcement, military, corrections and professional security agents, as well as a convenient series of personal protection devices roughly the size of a cell phone that can drop a mugger twitching and writhing to the curb in the most satisfying manner.

These units are the darling of most every police department in the country, as they can be used in circumstances where the safety of officers is at stake without risking the inevitable lawsuits and lost hours that result from firearm discharge.

Shocking Gains

Even better (for TASER anyway), while their professional models can be used over and over again, the personal systems require that you abandon the deployed unit after each use. Who would not replace a tool that just saved your life?

Talk about your permanent market!

But the best part is yet to come: much like virtually every other small tech stock, TASR has been punished mightily in recent days. Since the market collapse began a year ago, shares have been slashed from $19.10 to under $6 today.

Now normally I use stock options to leverage megacap stocks’ relatively small moves into triple-digit gains. However, this time around, I believe that this technique is both unnecessary and limiting.

As crime rises, I am forecasting TASR shares to return to their $20 range. For this opportunity, why risk time decay on a call option contract when simply buying shares of TASR offers one the same sort of triple-digit gains – many times over – during the next 18-24 months?

Source: Shocking Gains From Shocking Times

This from Fleet Street Invest:

‘Welcome to the new West! Where overnight oil millionaires with Porsches and over-the-top mansions butt up against the salt-of-the earth cattle and rodeo country. It’s a place where fortunes are made in the tar sands at noon and lost on the poker tables at night.’

Phew! I don’t think we’re talking about Ilfracombe! More like Dallas, I should say. And this is indeed the promotion for a television series called The Wild Roses, described as an ‘epic clash between two families on opposite sides of Calgary’s oil boom’. Sounds good, doesn’t it?

But what concerns me today is not this riveting saga, but the story of ContentFilm (LON:CFL). This penny share company owns Fireworks International, the distributor of The Wild Roses and many other television shows. Could this be a share for these troubled times? After all, as I have said in my ‘Bounceback Report’, I am on the look out for companies that supply life’s essentials – and, let’s face it, to many people the TV is one of them!

So I went down to London to see ContentFilm’s American chief executive, John Schmidt. We met in a restaurant close to the group’s office just off Regent Street. The rain was lashing against the windows, the kitchen was suffering from a power cut and the stock market was crashing around our ears. The omens were not propitious but the sense of gathering doom was confounded by the calm demeanour of Schmidt.

Maybe this had something to do with the fact that he had recently returned from Cannes. He was there to attend the massive TV industry jamboree, MIPCOM. It’s where media journalists try to spot the stars of the small screen, senior executives discuss the great issue of the day – how the new digital communication channels will affect TV – and broadcasters tour the exhibition halls in search of programs to show on their own networks.

A business model that’s well-suited to recessionary times

Recession or no recession, broadcasters have to transmit something, and Schmidt told me that MIPCOM had been ‘business as usual.’ But still the recession is having some effect. Whether funded by advertisers or by viewers, broadcasters are worried about their revenues. That means more repeats and more factual programmes which always sell well. It also means less appetite to take a chance on expensive and unproven new drama.

All this suits ContentFilm rather well, because it has a library of two thousand hours of television programs. It has also acquired a rosta from the Canadian Broadcasting Corporation last year, including a good percentage of factual programmes. So ContentFilm has regular repeat sales of programs from its catalogue and when it acquires the rights to new content, which include both TV shows and feature films, it has a good idea of how it will sell.

There for ContentFilm has quite a low-risk business model. It does not get into the speculative business of financing new production, it knows its market and it has put its formerly troublesome DVD business into a joint venture with promising early results. So the shares should be a good investment at this time of recession. And yet the price has fallen by 80% in the last year! ContentFilm is now valued by the stock market at just £7m, and at 4p the shares trade at just two times earnings! Surely a bargain?

Why March 2009 will be critical for this share’s performance

Well, not so fast. Here’s why you always need to look a little deeper. You can’t just pile into penny shares without doing your research.

As in the plot of any good television drama, there is a catch. You see, five years ago ContentFilm issued 34.9m Convertible Preference Shares. Holders could either convert each preference share into one ordinary share, or else they can be redeemed at a price of 26p next March. With a choice between 26p or a share trading at 4p there is only one answer. The preference share holders will want their 26p back. That means that ContentFilm will have to come up with more than £9m. Such is the fate of the best laid financing plans!

This £9m liability has been hanging over the shares like a curse. But it must be resolved soon. The share price has started to edge up and I sense that some form of compromise agreement may soon be announced. The redemption date of the Convertible could be extended to give ContentFilm more time to pay, or to give the shares more time to recover to the 26p level at which convertible holders might convert into equity rather than taking the cash.

This is a battle not between rival families in Alberta, but between holders of the ordinary shares and the preference shares. The question is, will it have a happy ending – or will it be a disaster?

Source: Could This Tiny TV Stock Be A Great Recession-Busting Investment?

This from Investment U:

Value investors, consider this your warning… With thousands of stocks down 50% (or more), investors are salivating over the bargains. But for every true deal, there are at least three “value traps” – stocks destined to languish at depressed levels indefinitely. Or worse, get cheaper still.

Think Kmart here. In late 2001, it became the poster child for value investors. They argued it was dirt cheap based on countless metrics like book value and sales. And it was destined for a historic turnaround.

Sure enough, the stock went from the bargain bin to the trash heap, as the company filed bankruptcy in early 2002.

So before you go bargain hunting in this market, arm yourself with this list. It could be your only chance to avoid getting snared by the countless “Kmarts” begging for your investment…

Value Stocks & Value Traps

In theory, a value stock is a beaten-down company that’s:

• 1. Cheap compared to its earnings, its competitors and/or some other relevant benchmark
• 2. Poised for a turnaround.

In contrast, a value-trap is simply:

• A beaten-down company that’s cheap compared to its earnings, its competitors and/or some other relevant benchmark
• That never quite turns around.

Unfortunately, no formula exists to calculate when, or if, a turnaround will ever occur.

10 Questions To Help Value Investors

These 10 questions should help any value investor. And ultimately, keep you out of most value traps…

1. Is there a near-term catalyst? First things first, if there’s nothing on the horizon – like a new product launch, key marketing arrangement, a shake-up of the executives, the conversion of a massive order backlog, etc. – we shouldn’t bother. Companies and stocks need catalysts in order to advance. If none exist in the next 12 to 18 months, chances are the stock will be stuck in neutral, or worse, reverse.
2. What are insiders doing? Nobody knows the company – and its future prospects – better than the insiders. If they’re not salivating over the “cheap” prices and backing up the truck, we shouldn’t either.
3. Is the company addicted to debt? Too much debt magnifies the impact of tough times. As sales decrease, interest payments take up more and more of the company’s earnings. Not to mention, unwinding leverage is a time-consuming process. So even if the company boasts new, fiscally responsible management, beware. Or as Warren Buffett observes, “When a management with a reputation for brilliance takes on a business with a reputation for bad economics, it’s the reputation of the business that remains intact.”
4. Does the dividend yield seem too good to be true? Value investors love to tout they “get paid to wait” for a turnaround. Granted, many stocks do maintain their dividends through a downturn. But countless others don’t. They slash or cancel them altogether, just to stay in business. No matter how tempting, tread carefully when the dividend yield hits double-digit levels.
5. Is the company just as “cheap” based on the future? At first glance Eastman Kodak (NYSE: EK) appears dirt cheap, trading at a price-to-earnings (PE) ratio of 2.96. But don’t be fooled. Or get too easily excited. Remember, the PE ratios cited on most financial websites are historical. And as investors, we don’t care what a company was worth… we care about what it will be worth. So before you buy, make sure the stocks forward PE ratio is similarly attractive. (FYI – Eastman’s is not. It trades at 27 times forward earnings. Hardly cheap.)
6. Which direction is the company’s market share headed? A general economic slowdown is one thing. But when a company’s losing market share, too, that’s an indication that a competitor has a better mousetrap. And while economic growth is cyclical, market share is not. Even if the economy or industry turns around, chances are the company’s market share won’t.
7. Does the company operate in a highly cyclical or moribund industry? If you go hunting in a highly cyclical industry (like semiconductors) you’re asking for trouble. Same goes for industries destined for obsolescence (like print media). To win with these stocks, you need both the company’s misfortunes and the industry’s to reverse course.
8. How’s the free cash flow? Earnings can be massaged, manipulated or completely fabricated. But cash cannot. So make sure free cash flow is stable, or growing. If nothing less, it provides management with a little wiggle room, or margin of error when considering ways to speed up a turnaround.
9. Is the stock liquid enough? Just like insiders provide support to share prices, so do institutions (mutual funds, pension plans, hedge funds, etc). Both groups can move stocks prices quickly and significantly. However, many institutions can’t or won’t buy stocks trading for less than $10, with a market cap below $1 billion and/or that don’t trade several million dollars worth of shares each day. Without the potential for institutional ownership, a quick rebound in prices becomes less likely.
10. Does the company have a sustainable competitive advantage? For a stock to turnaround we need the company to thrive, not survive. That’s not possible without a sustainable competitive advantage. So stick to companies like Apple (Nasdaq: AAPL) that are light-years ahead of the competition in terms of design, market share, new product offerings and/or technology.

In the end, don’t kid yourself. Detecting a value trap is no easy task. Even the best investors occasionally get snared. Think Bill Miller (with Countrywide and Freddie Mac (NYSE: FRE)) and Carl Icahn (with Yahoo! (Nasdaq: YHOO) and Advanced Micro Devices (NYSE: AMD)).

But at the very least, these 10 questions will ensure you never buy blindly, or on price alone.

Source: Value Investors – Beware The Value Traps

This from the Sovereign Society:

Since August 2007, the market has logged four bear market rallies and all of them ended badly.

From its lows earlier in October the S&P 500 Index has gained 5% and the Dow is up about 3%. The MSCI World Index has gained less than 1% from those same lows, constricted in great part by a surging American dollar.

But are stocks really cheap?

Global equities are now trading at their lowest trailing price-to-earnings multiple since the 1970s at just 10.3 times earnings. The majority of global markets have been mauled lately and virtually all of them sell at less than 12 times earnings and some below ten. Europe, the Pacific and Latin America all trade at compelling levels.

Yet U.S. stocks don’t necessarily appear that cheap when compared to international equities or when priced in relation to their 12-month earnings and dividend payments.

The S&P 500 Index trades at 21.3 times trailing 12-month earnings and yields 3.2% in dividends.

According to Wigmore (data from 1985), U.S. stocks peaked in 1929 trading at 30 times earnings and harboring a 3% dividend yield. But by 1932, U.S. equities traded at just 10 times earnings and yielded a fat 12.5% dividend yield.

Stocks thereafter embarked on a big rally of 67% in 1933 and another 38% in 1935. This followed the incredibly painful crash from October 1929 until late 1932 when the Dow collapsed a cumulative 87%.

Historical data therefore suggests that U.S. stocks are still not huge bargains. It also suggests that we’re still in the throes of a bear market rally.

But as the credit crisis continues to relax, the damage has already largely been done to the real economy. Credit is still hard to secure, consumers aren’t spending, retail sales are grim and layoffs are now widespread. Mortgage rates remain elevated. Consumers will eventually start saving again, and that is only bearish for corporate earnings. If consumers save, they don’t spend.

We’re now transitioning from one crisis to another, or going from the tail-end of a credit squeeze to a deep global recession that affects broad consumption. I highly doubt the market has discounted all the bad news. I also find it hard to believe that the Panic of 2008 and its horrific trail of damage, namely the destruction of wealth, will keep the market above water for very long. The Dow will at least re-test its 2002 levels at 7,200. Stay defensive.

Source: S&P 500 Still Not Cheap

This from Money Morning:

Although the ongoing financial crisis has introduced a new word – bailout – into the lexicon of most investors, a quick tour of history shows us that these big-ticket financial rescue plans are actually nothing new.

And that raises the question: Do they work?

A look back at history shows us that – like most government initiatives – the answer is “it depends.” While some investors might find that reassuring, history also suggests that the final tab for a financial-crisis bailout will be well in excess of what it should cost to fix the problems the crisis actually caused.

A Look Back at Bailouts

Take for instance the very first banking bailout in “modern” history, when Alexander Hamilton, the first U.S. Treasury secretary, told banks to accept bonds as collateral for loans that were then underwritten by the fledgling US government. At that time, a man named William Duer tried – and failed – to corner the market in government bonds, leading to the historically famous “Panic of 1792.” Faced with the potential for an almost-total complete collapse, Hamilton then borrowed money from banks and used it to purchase government bonds. Everybody survived (except for Duer, a one-time member of the Continental Congress, who went bankrupt in the panic and spent the rest of his life in debtor’s prison).

Forty-five years later in 1837, U.S. President Martin van Buren took the opposite approach and refused to involve the U.S. government when it came time to bail out the Second Bank of the United States. Organized under Federal Charter, the bank entered into speculative loans around the country, but was forced to suspend operations and went into liquidation in 1841.

Creditors received payment, and in an eerily similar outcome to today’s bank failures, stockholders received nothing. The depression that followed has been characterized as comparable to the Great Depression. Again, everybody survived, but in a foreboding manner, the damage spread throughout the U.S. economy.

In 1897, faced with a potential collapse of the U.S. Treasury (which was running out of gold to back its currency and its obligations), J. P. Morgan personally created a private syndicate on Wall Street to supply the Treasury Department with $65 million in gold and to float a bond issue that restored the U.S. government’s coffers to $100 million. He survived – as did the U.S. government, but many banks didn’t.

Only a few years later, in 1907, Morgan again rode to the rescue and – in one of the most fabled stories on Wall Street – locked banking executives in his personal library on East 36th St. until 5 a.m., which was when they finally gave in and agreed to backstop yet another financial crisis. This time the damage spread wildly throughout the U.S. market, and jumped across the Atlantic, as well.

The point I’d like to make with this little historical foray is the same one that legendary investor Jim Rogers made to me this past April during an exclusive interview at his home in Singapore: “History,” Rogers told me, “is filled with bailouts,” and their track record is spotty, at best – particularly in recent years as the increasingly intertwined nature of the global financial markets makes them more complicated than ever before.

Clearly that’s problematic.

Especially when a new study by Luc Laevan and Fabian Valencia covering 42 recent bailouts in 37 countries since the early 1970s shows that each time the “tab” was vastly underestimated. And that only reaffirms our oft-repeated contention that the “Bailout Boys” – U.S. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. “Hank” Paulson Jr. (or, more likely, their successors, as this will be with us for quite some time) – will be back on Capitol Hill, hats in hand, seeking additional money to continue their bailout battle.

The only question in my mind is whether or not we’ll have to pay back what we owe (courtesy of Wall Street) through a bailout plan that’s put together to rescue the current $700 billion bailout should it prove ineffective, or if we’re facing a second Great Depression that will even things out only after a number of painful years pass.

The Laevan and Valencia study suggests that the cost of the current bailout will be high, regardless of which alternative becomes a reality. According to researchers, the average bailout – net of asset recoveries – costs a staggering 13% of gross domestic product (GDP).

Assuming historical relationships hold true and there is no more bad debt uncovered (which seems highly unlikely at this point, particularly given how severe the current crisis has proved to be), that would put the bill at almost $2 trillion, which is more than double current projections.

And the bad news doesn’t stop there. The average public recovery is a meager 18%.

That’s not to say that the current bailout couldn’t beat the averages and end up costing less, which is exactly what Phillipa Dunne and Doug Henwood, writing in the Liscio Report, discovered. They note that the most successful bailouts are those involving recapitalizations, as opposed to the wholesale purchasing of bad assets that Paulson and Co. are pursuing.

The researchers also found that that use of public money to engage in recapitalization is often less costly than the afore-mentioned bailout strategy – on average, it costs about half that of conventional bailouts – and results in an average hit to GDP of roughly 6%, which in the case of the United States works out to roughly $850 billion.

Detractors will no doubt object to the Laevan-Valencia database because many of the countries included are so-called developing nations. We don’t think that objection is merited, particularly since Japan and Sweden are included, and since both provide startlingly divergent experiences.

For instance, in a well-publicized case of foot dragging, Japan engaged in a thorough pattern of denial that ultimately resulted in that nation spending a stunning 24% of its GDP to dig itself out after falling into a severe recession referred to as the “Lost Decade.” Sweden, on the other hand, took immediate and severe action and not only avoided a recession, but spent a mere 3.6% of GDP to get back on its feet.

It’s too early to tell whether the United States will fall into Japan-like slump, succumb to Zimbabwe-style inflation, or even re-enact the Great Depression. But it is clear that the U.S. economy is likely to experience a recession along the way – a possibility we’ve been warning readers about since this financial crisis began. Indeed, a mountain of data suggests we’re already there.
But there is a glimmer of hope.

As noted by researchers Dunne and Henwood, IMF data for Japan, Korea, Norway and Sweden all show generally lower inflation, moderating bond yields, generally stable employment and higher stock prices three years after each of their crises began.

Japan is the obvious exception having fallen into a severe deflationary period by virtue of half-hearted solutions and a full five years of denial that preceded any serious governmental action. 

So what should investors do now?

There’s no question that a properly diversified portfolio with an emphasis on defensive investments is going to be an investor’s best friend right now. Just because stocks are cheaper than they’ve been in years doesn’t mean they’re not garbage.

Fully 50% or more of investable assets should be concentrated in “safety-first” holdings, with balanced funds and municipal bonds high on our list at the moment. History suggests that an exposure to metals and commodities is warranted – as are the use of speculative “inverse funds” that generate profits as they continue to bleed off excess in a process we’ve termed the “Great Deleveraging.”

Such investments are also proper, given that the real danger we face is that of “The Greater Depression.”

Source: Bailouts Are a Mixed Bag – Even When They Work

More from Investment U:

With no end in sight to the string of negative headlines, investors worldwide are calculating the impacts of a sustained global recession. But since there’s no way anyone can accurately call the bottom, all we can do now is continue to uncover sound prospects for your long-term money… whether you decide to buy today, next month or a year from now. Here’s one in particular that’s well placed to weather any storm, including today’s…

When the average weekend warrior wants nuts, bolts and other hardware for a project, it usually involves a trip down to the local Home Depot (NYSE:HD) or Lowe’s (NYSE:LOW). However, if you’re running a manufacturing business or institution, like a school or hospital – and you need to keep it running – your needs are going to be much more immediate and diverse than what the big box stores can deliver.

But without wasting a lot of time running to a plumbing, electrical or other specialty store to get something specific, what other choices are there? Let’s say you need a new winch, or steel drums, or a conveyor belt, along with items from the plumbing and electrical stores.

In that case, your choice becomes a very simple one. It’s the same one that 1.8 million other businesses rely on worldwide. Yet you’ve probably never heard of this $6 billion Fortune 500 company… I’m talking about WW Grainger, Inc.

WW Grainger – A Global Industrial Powerhouse

WW Grainger, Inc. (NYSE:GWW), is a global industrial service business powerhouse. Grainger provides the nuts and bolts  – and just about everything else – from one of its more than 600 branches to over 115,000 customers every day.

And there’s no waiting: Customers can go directly to the branch to pick up their order or have it shipped directly to them.

Customers for its 870,000 products include a wide, diverse group:

• All levels of government, including offices, prisons, military installations and all U.S. postal facilities.
• Heavy manufacturers: lumber, textile, metal, chemical and rubber companies.
• Light manufacturing: pharmaceutical and biotech, food and beverage, and most of the electronics Industry.
• Retail: gas stations, restaurants, grocery and most other stores and malls.
• Commercial contractors: maintenance and construction on many kinds of commercial buildings and installations.
• Commercial customers: theaters, hotel, motels, hospitals and nursing care facilities.

Although WW Grainer has its roots in Philadelphia, where it started as a motor repair shop back in 1927, it has morphed into a global industrial supply powerhouse within the infrastructure sector. In addition to its 438 branches in the United States, Grainger has 15 branches and a distribution center in Mexico. Canada is well served, too, with 153 branches and five distribution centers.

WW Grainger’s Newest Venture – China

China is WW Grainger’s newest venture, and its 128,000 square-foot distribution center supports six branches located in and around Shanghai. Clearly the potential here is enormous, and Grainger currently has over 53,000 items described in Chinese in its online catalog.

And Grainger’s business is doing great, in spite of the economic malaise sweeping down upon us. The reason? Things break, wear out or need updating, and that requires many of the products that WW Grainger’s sells.

The company recently completed its third quarter, and sales were up 11%. EPS of $1.79 handily beat analyst’s estimates of $1.53 a share. The company attributed its better-than-expected results to an expansion of its product line and greater market share.

And in spite of the slowing global economy, Grainger raised its earnings outlook for the remainder of 2008.

WW Grainger CEO James T. Ryan had this to say: “Our third-quarter and year-to-date results are a testimony to Grainger’s winning strategy and our employees’ ability to execute. Going forward, the credit crisis and its effect on the economy create uncertainty. However, our national scale and local inventory availability help customers be more efficient as they maintain their facilities during these challenging times.”

So how is Grainger able to be so successful in such a challenging economic environment?

There are three things that contribute to Grainger’s continued success:

• Immediate product availability
• Flawless execution
• Standout customer service

The company has a long-term goal to average 7% to 10% annual sales growth through a given economic cycle. This sounds impossible at best, but the company consistently grows its top line revenue at a rate much faster than the growth in GDP.

In summary, the maintenance, repair and operations markets are estimated to be around $540 billion worldwide.

Clearly Grainger has plenty of room to grow its business for the foreseeable future, and it represents a great way to add a healthy infrastructure service business to your recession-resistant portfolio.

Source: WW Grainger: A Healthy Infrastructure Buy For Any Recession-Resistant Portfolio

This from Investment U:

Most investors have never heard of, or purchased, shares of a master limited partnership (MLP). But, with many yielding more than 10% and prices at historically low levels, these bargains are getting hard to ignore.

Few investors know that master limited partnerships are publicly traded asset pools. They have the tax benefits of a partnership plus the liquidity of a publicly traded stock.

Because they invest in many different types of assets, most master limited partnerships have significant debts on the balance sheet and have suffered from the credit crisis. But not all debt is bad debt. And their crisis could be your opportunity.

Profit From Master Limited Partnerships In the Energy Sector

I prefer master limited partnerships in the energy sector because their business is easy to understand. The ones that interest me own the pipes that move oil and natural gas from production to marketplace. Some of these companies also process natural gas, and they may even own an oil or gas field directly.

These companies are like utilities for energy production. Without their infrastructure, oil and gas couldn’t move to the consumers who need it. They play an integral part in the supply chain, and this makes their income stream steady and predictable.

The market has unfairly beaten up the prices of these partnerships. And the bankruptcy at Lehman Brothers only made things worse. They were dumping assets even before they went under. As a lender and advisor in this sector, Lehman was a major player in master limited partnerships.

One of my favorite master limited partnerships is Boardwalk Pipeline Partners (NYSE: BWP) – a firm that handles the storage and transportation of natural gas. Its largest shareholder, Loews Corp. (NYSE: L) heavily influenced BWP by assembling the core company assets, and taking the partnership public. It still owns 52% of the shares.

Loews Corp is controlled by the prominent Tisch family – known for their financial discipline. Boardwalk is no exception. It generates consistent cash flows and has limited debt. It has a ratio of long-term debt to capital of only 38%. Yet at a current share price of $16.30, it yields 11.5%.

Boardwalk’s shares have fallen 48% over the past 12 months. But even if energy prices stay depressed, it should rebound when the market sell-off subsides.

The Master Limited Partnership of NYSE: KMP

Another master limited partnership that I like is Kinder Morgan Energy Partners (NYSE: KMP). KMP is the largest independent owner and operator of petroleum-products pipeline in the United States, transporting more than two million barrels a day of gasoline, jet fuel, diesel fuel and natural gas liquids through over 8,300 miles of pipelines.

It is a major transporter of natural gas in Texas, the Rocky Mountains and the Midwest. The natural gas pipelines business segment consists of approximately 14,700 miles of pipelines with transportation capacity of about seven billion cubic feet per day, and working gas storage capacity of about 35 billion cubic feet. They also own or operate additional natural gas gathering, treating and processing facilities.

CEO David Kinder said in the dividend announcement, “While no company is 100% immune to external conditions, KMP continues to demonstrate that our diversified portfolio of stable assets is capable of generating consistently strong cash flow, even in extremely difficult market conditions.”

Having been formed in 1992, Kinder Morgan has now raised dividends for 12 years in a row – an exceptional record for a company that young. In fact, this pipeline giant just announced it was raising its payout again – increasing cash distributions per partnership unit from 99 cents to $1.02. With today’s price of $48.45, this puts its yield at 8.4%.

Master Limited Partnership Investing With An ETF

Another option for master limited partnerships is an exchange traded fund (ETF) that specializes in investing in the energy sector. The master limited partnership & Strategic Equity Fund (NYSE: MTP) holds a basket of energy master limited partnerships, and it’s currently yielding nearly 14%.

Many of these partnerships look incredibly inexpensive and they’re generating steady income. The income they offer will pay you until the share prices recover – perfect for investors looking for an alternative to stocks in this volatile market.

Owning these makes you a limited partner, which allows you to claim a share of the master limited partnership’s depreciation on your tax returns. In addition, they avoid the corporate income tax, on both state and federal levels. You still would owe tax payments ­(just like your other investments), but you suffer no double taxation.

This is why master limited partnerships are not appropriate for tax-deferred accounts – such as an IRA – because you would lose the ability to deduct this depreciation.

If crude oil and gas prices fail to stabilize, then sentiment against these master limited partnerships could stay negative. And that could mean even better bargain shopping down the road…

Source: Master Limited Partnerships: A New Way to Shop for Bargains

As you can see, aside from the buildup of inventories and an increase of imports, the only other positive sector is national defense.

Perhaps that’s not surprising – our numerous “Pax Americana” obligations around the world are extending the U.S.’ military capabilities to the stretching point. And, in the process, costing a ton of money.

But many companies in the defense sector are benefiting. And aerospace companies getting a substantial portion of their revenues from the U.S. government are doing quite well these days. Despite enjoying nice runs up the chart, they still sport some very impressive value and growth metrics. For example:

Integral Systems (ISYS): Forward P/E 17, PEG 0.75, revenue growth last quarter of 55 percent, operating margin of 17 percent.

Curtiss-Wright (CW): Forward P/E 16, PEG 1.2, revenue growth last quarter of 30 percent, operating margin of 11 percent.

Orbital Sciences (ORB): Forward P/E 24, PEG 1.6, revenue growth last quarter of 30 percent, operating margin of 8 percent.

Esterline Technologies (ESL): Forward P/E 15, PEG 0.6, revenue growth last quarter of 45 percent, operating margin of 9 percent.

Doing a little math by dividing their forward P/E by the PEG, you can see that future earnings growth for these companies is projected at annual rates of 13 percent to 25 percent. And a recession isn’t going to cut into military spending. That means these companies should continue to fly high.

Source: Go on the Offensive with These “Defensive” Stocks