Chasing Value: Four Great Stocks -- Gov't Fears Savings Spiraling Out of Control

From the federal government's perspective personal savings is spiraling out of control!

Given that 70% of the economy was consumer based, it's understandable that there is concern. However, it would be a disaster to abandon a practical level of savings to return to an over indulgent lifestyle that devastated the world financial system and almost led to complete financial ruin. We still had partial financial ruin and a speedy recovery hoped for by some may just lead us right back to the abyss.

We now have a checklist of things to fear: deficit spending, unemployment, and the outside chance of a double dip recession are among the chief concerns. A lot of people have been flocking to US Treasury notes, corporate bonds, and gold. There is a debate among the prognosticators about whether we should be more concerned about Inflation or deflation. It's all guess work. Gold could be a big myth in terms of safety and there are those that fear a bond bubble.

If there is anything that would make me afraid of bonds right now it is that the crowd is flocking there. To me, that means stay away. I hate crowds (and mosquitoes, taxes and traffic). So where can we find sensible investments now?

Given the state of the economy, think about collection agencies. Portfolio Recovery Associates Inc. (PRAA) beat earnings by 23% as reported this month and was praised by The Motley Fool, deservedly so, for its strong business model, increased diversification, and recurring revenue. As most peoples finances are being stressed to the limit, PRAA is thriving. Unfortunately, we can look forward to this continuing for some time to come.

I have written about EZcorp (EZPW) many times, most recently in Chasing Value: EZCORP Is Easy Buy, Beating APPL, ISRG and XOM and its business consisting of pay day loans, small personal loans and pawn shops is likely to continue thriving as they serve a large population that banks do not. EZPW has a good business under normal conditions, but under times of economic stress which may be with us for a long time there should be substantial demand for its services.

Berkshire Hathaway (BRK.B) under the direction of "my pal Warren" added Fiserve (FISV) to its holdings. The company provides information management and electronic commerce services including transaction processing, electronic billing and payments, and business process outsourcing. Its clients include banks, lenders, credit unions, insurance firms, merchants, government agencies, and leasing companies. The government keeps making life more complicated and that just plays into the hands of Fiserve.

Another company I have discussed before is Ebix (EBIX) Chasing Value: Insurance Mess, Ebix to the Rescue and everything I said then still holds true. At the time it was trading at $16.95. Today in a down market Ebix is trading up currently at $19.39. The company sells insurance industry software products and professional services. EbixExchange service acts as an online auction house where buyers and carriers can exchange bids for auto, home, health, life, and other types of insurance, while paying Ebix a fee on each transaction. Ebix also provides agency management software that includes workflow and customer relationship management capabilities, as well as other back-office functions, for insurance brokers and insurance carriers. The government has done its best to help us by adding such complexity to the world of insurance that it probably equals the complexity of the tax code. This can only help Ebix in the long run no matter what the economy does.

There you have it, four great picks covering collections, pawn shops, financial industry and health care back office support all made to order for one big economic mess. We all should just keep saving and investing. It is fine by me if the economy takes a little longer to heal, if it does in fact heal. Band-aid solutions are no solutions at all and require too much constant care.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value™ and Serious Money. Disclosure: He owns shares and / or options in BRK.B, EBIX and EZPW.