Comfort Zone Investing: Unless you think the world is ending, buy these

If you think the world is ending, stop right here. These stocks aren't for you. In fact, no stock is for you. Just stay frightened and put your money in a mattress and hope the next round of inflation doesn't wipe you out as much as this economic cycle has. Because that's what it is, a cyclical economic downturn, exacerbated by stupid loans and poor management. There will be an up cycle again, unless of course, you believe the world is ending. Then there's no cycle for you, up or down.

But if you'll allow just a little hope on your horizon, then you'll want to be invested in the stock market. In the past, it has been the best performing asset class, better than gold or real estate or diamonds. Whether it will again remains to be seen. But history counts, and if the economy returns to some kind of normalcy, certain stocks will do very well.

With the premise that these companies won't go out of business, you have to consider these stocks as absolute bargains. The common threads: growing earnings and solid financial statements with low valuations. Listed alphabetically by symbol.

Cisco Systems, Inc. (NASDAQ: CSCO:) Recently upgraded to a buy. Stock was at 52-week low not long ago, yet it has $20 billion in cash or about 20% of its market cap, is the dominant market leader and can execute its business strategy. One analyst from JMP Research calls current valuation "silly" it's so low. Over the last 5 years, earnings grew by 21.14% a year, on average. In the next 5 years, analysts see average annual growth of 15.11%. P/E (Price to Earnings ratio) is 14.5 with a Forward P/E of 10. There is no dividend. Financial Strength is A++.

Emerson Electric (NYSE: EMR): (see this week's Conservative Investor column at www.theonlineinvestor.com for more details.) Financial Strength: A++.

General Electric Co. (NYSE: GE): A recent purchase by Warren Buffett, to the tune of $3 billion. GE owns so many businesses, it's a surrogate for the entire economy. Average annual earnings growth last 5 years: 8.2%. Next 5 years, analysts estimate 10.8%. Dividend is 5.8%. Return on Equity last year was 18.4%. Book Value is $11.90. P/E is 9.5. Forward P/E is 11.13. Has $19 billion in cash or $1.90 a share. Financial strength is A++.

International Business Machines (NYSE: IBM). Used to be focused on hardware, now it's software and service. Earnings grew by 13.5% in last 5 years. Analsyts predict 11.1% annual average growth rate for next 5. P/E is 11.76. Forward P/E is 10.15. Dividend yield is 2.3%. There's $9.85 billion in cash. Book Value is $20.86. Return on Equity was an astounding 50.63% in the last 52 weeks. Financial strength is A++.

Johnson & Johnson (NYSE: JNJ): a drug company and so much more. Earnings have grown 11% a year for the last 5 years. Analysts see 8% annual growth for the next 5. P/E is 16 (forward p/e is 14). Dividend yield is 3.3%. J&J just reported earnings of $1.17 for the quarter, well ahead of the $1.11 analysts predicted. J&J also raised its 2008 earnings forecast. The company now sees adjusted earnings of $4.50 to $4.53 a share. "Johnson & Johnson continues to achieve solid earnings results despite the impact that generic products have had on our pharmaceutical business," said William Weldon, J&J's chief executive officer. "Of note was the strong sales performance of our consumer segment and the solid sales results in our medical devices and diagnostics segment." Financial Strength: A++.

McDonalds Corp. (NYSE: MCD): Sure, every parent has had enough Big Macs. That's why the company expanded its menu, added better options like salads. Earnings grew 17.55% a year, on average, over the last 5 years. Look for 10.5% a year in the next 5. P/E is 14.99 with a Forward P/E of 14.94. Return on Equity in the last year was an impressive 29.71%. Dividend yield is 3.7%. Book Value is $13.00. Has $2.34 billion in cash. Financial Strength is A++.

Microsoft Corp. (NASDAQ: MSFT): Can there be any growth left for one of the few monopolies, when it's already so large? Yes, there can, Ollie. Analysts see an average of 11.19% a year, on average, over the next 5 years, better than the 10.57% the company showed in the last 5. P/E is 13.33 with a Forward P/E of 10.4. Price to Book is 6.43. Profit Margin is an unbelievable 29.26%. Return on Equity is the best of this group at 52.48%. There's $21.17 billion in cash. That's $2.32 a share. There's only $1 million of debt. Book Value per share is $3.96. Dividend yield is 2.4%. Financial Strength is A++.

Procter & Gamble Co. (NYSE: PG): Another Buffett holding. You have some of their products in your house, under the kitchen sink or in your bathroom or laundry room. Don't expect any home runs from this well diversified company, but it's a solid earner through good times and bad. In the last 5 years, earnings have grown, on average, by 10.77% a year. Look for 10.5% in the next 5, on average. P/E is 17.65. Forward P/E is 14.87. Profit Margin is 14.46%. Return on Equity is 17.72%. There's $3.54 billion in cash. Dividend yield is 2.7%. Financial Strength is A++.

Wells Fargo & Co. (NYSE: WFC): Warrent Buffett's favorite bank. Need I say more? Here's a little more. Another of the "favored" banks by Treasury, to receive $25 billion. It's picking up Wachovia for $12.2 billion to add to its girth. Over the last five years, earnings grew, on average, 4.76% (this year, earnings will be down by 15%). Over the next five years, analysts see growth, on average, of 8.4%. P/E is 15. Forward P/E is 14.5. Price to Book is 2.1.
Profit margin is 21.7%. Return on Equity is 15.3%. Dividend yield is 4.8%. Financial Strength is A+.

Wal-Mart Stores Inc. (NYSE: WMT): Wal-Mart is the benchmark for retailing. Determined to cut prices, this company grows ever larger. Earnings grew, on average, 10.54% a year, over the last five years. Expect 11.55% over the next five. (Yes, higher earnings growth in the next five years.) P/E is 16.3. Forward P/E is 14.22. Price to Book is 3.2. Return on Equity was 20.75% in the last 12 months. Has $6.91 billion in cash. Dividend yield is 1.9%. Financial Strength is A++.

Exxon-Mobile Corp. (NYSE: XOM): Demand for oil isn't going away, ever. Exxon-Mobil has more of the black stuff than any other company. While the price per barrel has fallen dramatically (from a high of $145 a barrel to as low as $77 recently, then rebounding to the low $80 range), it's hard to imagine oil producing nations such as Saudi Arabia or Dubai pumping oil at the same rate if prices stay low. Supply will meet demand but excess supply is hard to imagine for this finite substance. With prices zooming in the last five years, earnings have kept pace, at an average annual rate of 29%. Don't expect that growth in the future. Analysts see 6.1% a year, on average in the next 5. So this isn't a growth stock. At least not at the moment. If another disruption of supply occurs, the price per barrel of oil will rocket again. Total cash here is $39.70 billion or $7.64 a share. P/E is 9 Forward P/E is 8.25. Price to sales is .88. Profit margin in the last 12 months was 10.17%. Return on Equity was an impressive 36.19%. Debt to Equity is .077. Book Value is $24.03. Dividend yield is 2.6% Financial Strength is A++.

You'll need to investigate each of these further to determine which, if any, are right for you. Don't just buy them. Then, if you like some or all of them, the prudent approach: buy several in small amounts, to start a position. That spreads your risk and allows you to purchase more if a stock goes lower. If you have no cash, consider selling some of your weaker stocks (yes, at a loss) and take this opportunity to upgrade your portfolio to these market leaders.

Can these great stocks go any lower? Of course they can. But most of them already reflect bad things happening to earnings for the next 6 months to a year. If there are positive surprises (such as IBM showed only a week ago), these stocks will bounce back nicely. And if there's a general, sustained market rally, where investors begin to believe the worst is over, these stocks will lead the market higher. Remember, it's only the future that counts. Future earnings and current equity are what you own.