Clean Up Your Investment Portfolio
by Charles B. Carlson, CFA
Dow Theory Forecasts


"Clean" investment stories have become increasingly popular with investors in the wake of accounting scandals and the subsequent blow-ups that have rocked a number of prominent companies.

What makes a clean investment story? For starters, clean companies have reasonably simple business models. Such simplicity usually breeds consistency in financial performance. Second, clean companies have solid finances, characterized by strong liquidity and manageable debt loads. Third, clean companies have a history of steady earnings and revenue growth and have maintained that growth even during tough economic climates. Fourth, clean companies have avoided the accounting scandals, earnings and revenue disappointments, and other "dirt" that have fueled heavy selling in many stocks.

One problem with investing in "clean" stories, however, is that such consistent performers usually trade at fairly pricey market valuations. However, the market's pullback in recent months has created better values in a host of stocks, including some with clean stories.

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