“The Rude Awakening’s editorial director Eric Fry thinks Hank was way off the mark. Eric says financial stocks will by a buy one day, but he doesn’t believe we are looking at a bottom now.

In the second part of The End of Peak Greed, Eric says investors are better off putting their money into companies that are making the world go around than betting on financials, which are sending it not a tailspin.

But recent dismal results from the financial sector show us still that the bottom may not be in. Almost no one can buy a house these days. But almost everyone is eager to buy the shares of the companies that can’t sell the houses that nobody can buy. And I think that’s about all you need to know about the financial sector and the housing sector to know that we’re probably not at the bottom yet.

These financial stocks will be a buy one day, there’s no question about it. And maybe they are right now. I am not arrogant enough to say that I know. I mean, maybe this is the greatest buying opportunity of all time in the finance sector. It could be. And I mean that genuinely. But I don’t believe it is.

Any investor who is tempted to bottom-fish in the financial sector, should take a look at this chart:

It compares the Nikkei Index to the Topix Japanese Banking Index. You can see that the Topix Banking Index is down 80% from its high in 1989. That’s a very, very long time. Not only that, the index rallied around 40% to 60% seven times during that period. Seven different times investors believed that this index was recovering. And seven times, it did not.

One of the reasons is that during a period of de-leveraging, such as Japan suffered, equity disappears. Equity struggles. A lot of good things can happen to businesses; a lot of good things can happen to individuals; credit can flow again. It doesn’t mean equity is going to recover. Equity suffers. It goes away.

These things will be a buy someday. It’s just that I prefer to miss the first 20% of the upside. And I’d rather buy into something where I can see at least a sign of a rebound. So why not invest in the companies that are making the world go around, and are performing well, instead of the companies that are making the world go into a tailspin?t

Addison Wiggan and Ian Mathias in Agora’s 5 Min. Forecast are equally skeptical about U.S. banks’ financial health. This from yesterday’s edition:

Here’s another worrisome new trend in the financial sector: Two sovereign wealth funds just took a pass at purchasing a gigantic stake in Lehman Brothers. Rumors abound this morning that Lehman has been offering to sell 50% of itself to state-owned banks in China and South Korea. Both foreign investors balked at the last minute.

P.S. Read on here for the first part of Eric’s post on the U.S. financial sector: Avoid Bottom Fishing for Financials: It’s Way Too Risky

Source: The End of Peak Greed, Part II

This industry is getting squeezed, as spiraling commodities prices increase input costs. And few firms are managing to pass those extra costs onto cash-strapped consumers.

One company is bucking that trend, says Lynn Carpenter in Investor’s Daily Edge. Spam-maker Hormel (NYSE:HRL) reported a 17% improvement on its net profits from a year ago…

Quarterly reports have millions, billions and thousands dancing across the charts of financial results, footnotes, interpretations…. But the basic idea is simple:

If you made 1,000 boxes of granola in your kitchen at a cost of $3 a box and sold them for $5 a box, you’re doing nicely. If your ingredients and fuel suddenly raise your cost to $4 a box, your profit margin is 50% lower.

Now raise your selling price to offset that dollar increase in costs that you anticipate. Add a little extra for good measure, you’ll price your granola at $6.50 a box. And by the way, those two teenagers and the part time driver that are helping out still get paid… they’re costing you 50 cents a box.

Next quarter, you count up sales dollars and find they’ve soared 20%. A year ago, you sold $1250 worth of granola in the same quarter. Now you’ve jumped to $1,500. Break out the Cold Duck.

But wait… when you look beyond the higher dollar sales intake, you discover things are not so good. That 20% increase in sales came on only 230 boxes of granola compared to 250 last year in the same quarter. What’s more, that 50-cent a box cost for labor increases to a 55 cents per box clip. And you miscalculated the impact of fuel. You thought it would go up 50%, not that it would double.

Now, despite “better” sales, you’re running on a much thinner margin. And then Jane down the street gets into the business, and she’s offering her wares at $6 a box.

This is what is happening in the food business right now. Many are battling rising input costs and tough competition. But few are actually benefiting from events and price trends.

The telltale difference is in who’s merely holding on against pressure and who’s advancing in how profit margins hold up.

For instance, Kraft (NYSE:KFT) was a hot stock for a while after Altria (NYSE:MO) spun it off. But from an 8.6% average net profit margin over the past five years, it dropped to 7.2% last year. And in its most recent report, that margin was down to 5.8%. That drop came despite the illusion that all was well because sales rose 8.4% from FY 2006 to FY 2007. Profit margin in 2008 will be lower still if the early quarters’ trend wins out.

In contrast, Hormel reported a 17% improvement in its net profits from a year ago, thanks to lower pork prices and a new-found love among cash-strapped families for its iconic product: Spam.

Of course, if you’re talking turkey—that might be a problem next quarter, but probably not enough to turn Hormel’s trend the wrong way.

That’s the kind of trend you are looking for. This sort of information is in the companies’ press releases, including those issued through Business Newswire.

I used food companies as an example because we all understand that business easily. And this is just a cursory glance, an example of the kind of information you want to see.

But it’s not too hard. Just let those press releases come to you. Skip the headlines and check what they say about how profit margins are doing. You are bound to find some companies that will emerge from this bear market and this shaky economy ahead of others.

Source: Food Fight! Cheaper Corn, Higher Oil, Which Food Companies Are Winning and Losing Now