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Investing Specialists

Four Ways to Upgrade in the Bear Market

Financial strength will carry these high-quality firms through the crisis.

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It's frightening when a 5% drop in the major stock indexes seems like just another day, but such is life in late 2008. The volatility in the market is still exceptionally high, and the drumbeat of bad economic news continues. I know it is very tough out there, and I have felt the pain, too. However, we need to keep our heads if we are to come out on the other side of this successfully.

For those who are getting nauseated by this volatility and the seemingly day-by-day draining of the stock market's value, consider this: Bear markets are excellent times to "trade up" in the quality of the companies in your portfolio.

Allow me to offer up four ideas with rock-solid balance sheets, all with wide economic moats, trading well below their fair value estimates and with single-digit forward P/E ratios. I also own all four of these in the StockInvestor portfolios (as well as personally). Even though each of these companies has its own set of challenges, their balance sheets make this group assured survivors of the current credit crisis. And in this severe economic climate, I think focusing on the survivors is incredibly important.

Paul Larson has a position in the following securities mentioned above: EBAY, GD, MSFT, XOM. Find out about Morningstar’s editorial policies.