The first rule on his list was
Look for companies with flexible production and low fixed costs.
He gave Nucor (NUE) as an example, of it he said
The common wisdom is that demand for steel drops in a recession as demand from car and appliance makers tanks. And that common wisdom is absolutely correct. Nucor, in its Oct. 16 conference call with investors and Wall Street analysts, reported it had shipped 13% less steel in the third quarter than in the second quarter of 2008. The outlook for the fourth quarter and for 2009 is so murky, the company said, that it won't venture even a guess at production levels or revenue for those periods.
The second rule was
Look for free cash flow that covers debt payments and is large enough to finance the company's growth.
As an example he gave First Solar (FSLR) the nod but felt uncertainty into 2009 was still too much of a risk for the company, although it was certain watchlist material:
The third rule was:
Look for companies whose customers have the cash or credit to keep buying.
Of this rule he said
Ideally, you want to own shares in a growth company such as Middleby (MIDD). In October, the company announced that Yum Brands' (YUM) KFC chain had successfully tested Middleby's new oven. Middleby's Blodgett Hydrovection oven is the key to a new KFC product line that will include new signage at KFC stores ("Now Grilling!"), a redesign of the company's iconic bucket and a whole new direction for the chicken empire that has never been a bastion of healthful eating.
How will Middleby fare in 2009?
If you would like copies of these stock charts with the latest end-of-day price for your Zignals account please email me at declan-at-zignals.com and I will email them to you.
Thanks to DIV-Net for the latest Zignals Carnival Post.
Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts, and stock charts website
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