To top it off, the Federal Reserve has vowed to keep interest rates at historical lows in order to spur investment and lending, and to spur economic growth.  Although this may be good for the economy as a whole, it doesn’t help to grow my savings account.  And because savings account rates are low, CD rates are also low.

The result of all this is that, aside from my emergency fund, I need a better way to invest my money in a relatively safe way until savings account rates increase.  There are a couple of options to do this.  The first is bonds.  The problem is that I don’t know bonds.  That’s why I picked option #2: dividend-paying stocks.

There are plenty of stable, dividend-paying blue chip stocks that pay a dividend of 2% or more, which is much higher than the average savings account pays.  There is, of course, the risk that stock prices can drop and that drop would defeat the original purpose of growing your money.  And to that, I would simply say that nothing good comes without risk.

The upside of investing in dividend stocks is that, if you pick stable, blue chip, dividend-paying stocks, their prices are typically more stable than most other stocks.  On top of this, a healthy dividend usually provides a cushion to downside potential.  For example, most stocks pay a dividend of 1.5% and Diageo (DEO), which I own in my portfolio, pays a dividend of close to 3%.  Diageo is currently priced at $89.15 per share.  If Diageo’s price were to lower to $80 per share, its dividend yield would significantly increase, likely attracting new investors, assuming there was no change in its fundamentals.

Another great option to consider is dividend ETF’s.   This is especially a good option if you aren’t comfortable investing in individual dividend-paying stocks or just need a place to keep your money temporarily.  A few examples are the Vanguard Dividend Appreciate ETF (VIG), SPDR S&P Dividend ETF (SDY), and iShares Dow Jones Select Dividend Index Fund (DVY).

The bottom line is, if you 1. Have a sufficient emergency fund, 2. are comfortable keeping your money in the stock market and 3. don’t need the money within the next few years, then don’t settle for the measly rates that savings and checking accounts are paying.  Put some money in dividend stocks and they will pay you a much better return than the banks.

Think about it…if the economy isn’t growing, as an industrial waste disposal company, you don’t have as much room to grow your revenues assuming your competition is strong.  That is exactly the predicament that US Ecology, Inc. finds itself in right now.

Competitive Landscape

The waste disposal business is very competitive.  However, the relatively high barriers to entry prohibit new competitors from easily entering into the fray.  There are 5 or 6 other waste disposal companies including Waste Management, Inc , Clean Harbors Inc., and Environmental Quality Company.

US Ecology, like some of its competitors, offers a relatively unique mix of services to both industry and government that distinguishes it from its competitors.  It offers radioactive and hazardous waste removal, as well as recycling and other general waste removal services.

Grade: B

Finances and Management

The company has a strong balance sheet, with virtually no debt.  In addition, it has added to its assets after its acquisition of Stablex in 2010.  Its income and revenue have been decreasing since 2008, however profit margins have remained healthy.  Cash flow has been steady, although it did expend a good deal of cash in the acquisition of Stablex.

Grade: B

Value

The current P/E is fairly high at close to 20; however, the current dividend yield of over 4% will provide some cushion and limit downside.  While this stock doesn’t scream value, I really like the dividend and think that this alone might justify pulling the trigger on this one.

Grade: A-

Outlook

With continued competition, I think this company is in good shape as the economy continues to emerge from recession.  Cyclical companies like this will be some of the first to rebound as the economy improves.

Overall Grade: B+

Full Disclosure: I do not currently own this stock.

Similarities:
1. Customer Base. Both serve residential customers. Both companies are obviously focused on home improvement. While Lowe’s serves primarily residential customers, Home Depot serves both residential and a large percentage of commercial customers as well.

2. Product Offerings. You could argue that the product offerings at the two stores are very similar, if not almost identical. At both stores, you can find lumber, hardware, tools, large appliances and fixtures, and outdoor supplies. However, Home Depot’s products are somewhat more focused on its commercial customers, and noticed that Lowe’s sometimes doesn’t have specific products or parts that I am looking for, while Home Depot almost always does.

3. Company Size. Both companies are large, national chains with hundreds of stores, and both are expanding internationally.

Differences:
1. Customers. As mentioned above, Home Depot has its focus on both the commercial market and the residential market. Lowe’s more residential focused. Since there is so much overlap between demand in both markets, I think Home Depot has an advantage here. Lowe’s is trying to make inroads, however, into the commercial market.

2. Management and finances. Currently, although they are both mammoth-sized corporations, Home Depot’s market cap is currently about twice that of Lowe’s. Revenue at Lowe’s has been relatively steady over the past several years while margins decreased, whereas Home Depot’s sales have decreased, but its margins have increased.

3. Marketing: Lowe’s and Women. Lowe’s has focused its marketing efforts on women, with wide, bright aisles a focus on appealing displays, good merchandising, and strong customer service. Home Depot was originally less focused on merchandising until more recent years, and after they changed their focus they have improved their appeal and become more customer-friendly.

4. Online Presence. Lowe’s is doing a lot more to improve their online presence. When I search for how-to type of information on Google, Lowe’s articles or interactive tools frequently appear in the search results. This drives a good deal of customers into both their online store and physical stores. I would expect this web presence to give Lowe’s a leg up as the world continues its venture into the digital abyss.

Can both companies thrive in the home improvement space for years to come? Yes, I absolutely think they can. The demand for home improvement products is very high, and will continue to be high as long as the world population continues to rise and the middle class has money to spend on home improvement projects. As the economy improves, credit loosens, and middle class household incomes stabilize, people will continue to spend money on their homes where they spend the majority of their time.

Overall, Home Depot and Lowe’s are very similar. Despite the recent real estate meltdown, because I like the home improvement sector, I bought shares of Lowe’s several years ago. Having said that, I expect both companies to do well into the near future. The reason I bought Lowe’s stock instead of Home Depot because both Home Depot and Lowe’s have stores within a mile of my house, and I almost always choose Lowe’s because I prefer their product offerings, merchandising, and customer service.

Full Disclosure: I own shares of Lowe’s in my portfolio. I do not own shares of Home Depot.

Finally some good news on the homefront to temporarily shroud the constant barrage of doom and gloom coming from the ever-looming European debt crisis.

Keeping in mind the 3rd quarter GDP report that said that GDP growth was fueled mostly by credit, I can’t help but think that credit is also the force that is fueling the surge in Black Friday sales. This means two things: 1. banks are likely continuing to loosen lending standards following a prolonged period of tightening of epic proportions and 2. people are becoming more willing to spend on credit.

So, what should you do? This is definitely not a buying opportunity in my opinion. The European mess will continue to rear its head at inopportune moments, so my take is that this is a short-term opportunity to sell, especially if you own positions in stocks with exposure to the European debt crisis.

All three major indexes saw gains of around 2% on Friday following the resignation of Italian prime minister Silvio Berlusconi and announcement of the passage of a measure related to austerity in the Italian Senate.

Overall, it was a mixed week as the Dow gained 1.4 percent and the S&P 500 gained 0.8 percent, while the Nasdaq slipped 0.3 percent. Financial stocks, which have been seen as most vulnerable to the European debt situation, performed the best following the good news from Europe.

As economic news continues to flow out of the wide open spigot of Europe, expect the market craziness to continue. It seems like the EU has been able to contain the issues of its problem children so far, but the unpredictability has been driving investors crazy and I expect it to continue to do so for at least the next couple of months as volatility reigns supreme.

A couple of other good blog posts about Italy and this week’s market activity:
It’s Not the Heat; It’s the Liquidity
Greek PM Sworn In; Italy Pushes through Austerity Law

There is one thing that almost everyone can agree on – our political system is broken, and no one is really trying to fix it in a meaningful way. What is actually happening is that there are two groups yelling really loud trying to make a statement about what they think is wrong with the system. In the end, all that is boils down to is that one of these groups is right, and the other couldn’t be more wrong.

I agree with the tea party on one thing. The federal government needs to work on balancing its budget. I disagree with them on just about everything else. To explain why I disagree with them on everything else, I want to take apart their major claims (stated or unstated), and explain why their influence has been significantly detrimental to the U.S. taking any meaningful steps toward economic recovery.

Tea Party Claim #1: Government is Bad and Should Be Eliminated (or at least most of it).
My Claim: Government is not perfect. In fact, it is far from perfect. Institutions such as government that don’t face competition are by their nature inefficient to a certain degree.

In fact, in a perfect world, I would prefer to pay no taxes and hope that everyone could live in a world filled with peace and harmony where private enterprise formed alliances to build roads and bridges out of mutual interest and allowed everyone to use them free of charge. I would love to live in a world where we didn’t need policemen because everyone was so busy with running their own business that they didn’t have time to get in trouble with the law. I would love to live in a world where there are no poor because anyone who was left behind in this altruistic entrepreneurial paradise was taken into the homes of the well-to-do and served caviar off the very same plates from which their wealthy hosts eat until they were able to get back on their feet and start their very own successful small business.

The problem is that you and I don’t live in this dream world. We live in reality. Reality means crime. Reality means poverty. Reality means corporate profits wax and wane, thereby making infrastructure construction and maintenance solely the domain of government. Reality means many other countries around the world subsidize industry at the federal level to gain strategic advantages over other countries. To the tea partier, this may sound Marxist. It’s not. It’s reality.

Taxes are too high
My Claim: Taxes are too low Yes, I said it. The reality is that I hate taxes. So should you. I work hard for my money, and hope you do too. But the problem is that, although I hate taxes, during virtually every recession in recent history, the policy of the US government has always been to spend our way out of it. It’s very simple. If you don’t put people back to work, confidence stays low and as long as confidence is low both people and corporations don’t want to spend money. To put people back to work and inject confidence back into the economy, you need to raise employment, which requires spending money.

The real question is what is the best way to do this? Cutting taxes even more from historically low levels is, in my opinion, not an option. Nor should it be for any other rational person. In a time when the top 1% of the population owns 40% of the country’s wealth, this one is a no-brainer. Forget all the old lie of trickle-down economics. The wealthy invest their money in their businesses, luxury items, stocks, and bonds. When they do this, thier money is spread all over the world via the international corporations they invest in, which in then return most of their money to their highest-paid employees. It all sounds so very Marxist, but again, we are talking about reality and not fantasy.

In my opinion, the rational answer is to raise taxes on the extremely wealthy to their former levels during the economically prosperous 90′s and redirect that income to invest (see I told you this would be relevant to investing, didn’t I?) in our economic future. Build roads, fix bridges, build a viable national mass-transit rail system, put teachers back to work and reduce class sizes, help every high school student who wants to college by expanding the federal student loan program. Do the things that will help us emerge from this recession and emerge as a stronger nation.

Tea Party Claim #3: “Tea Party” is a good name for a political movement.
My Claim: It’s not. It’s the opposite of good. I would never go to a tea party. In fact, I would argue it is a textbook example of an oxymoron. I don’t trust people who go to tea parties. They are either pretentious or British, which ironically of course was the group of people who we were trying to avoid paying taxes to in the first place back in the late 1700′s.

So, to summarize…the tea party is like a petulant child that wants to have his cake and eat it too. It wants to both lower taxes and balance the budget. This is impossible. And yes, it is that simple.

Enough about the Tea Party. My next post will be about Occupy Wall Street Movement and why some of their claims make much more sense than the Tea Party. Stay tuned…

Competitive Position
ATI is one of the larger and more diversified companies in its industry. Its operations are focused on being able to efficiently produce specialized alloyed for very specific applications and needs. Many of its competitors are overseas, and do not have the same flexibility to meet the needs of such a wide variety of industries.

Grade: A-

Finances
By its nature, Allegheny Tech is a cyclical stock. This means that as the economy revs up, so does ATI. The flipside is that when the economy hits a rough point, ATI’s stock usually follows suit. That said, revenue took a major hit in 2009 (around a 40% decrease compared to 2008) when the economy was in the toilet, but has bounced back to healthier levels since then as the economy has risen out of said toilet.

Grade: B-

Management
Allegheny Tech has a seasoned and stable management team that has successfully steered the company to success over the past 10 years. Since its business is seasonal by nature, its stock was overvalued when the economy was doing well in 2006 and 2007, but took a tumble when the economy turned sour. This is not in my opinion a result of bad management, but simply market forces putting too much of a premium on the company’s growth at the time.

Management has created partnerships with a diversified array of industries, so as to not become completely reliant on any one industry. Additionally, it has manufacturing and distribution facilities all over the world. Therefore, although it isn’t necessarily resistant to economic cycles, its global footprint and diverse revenue sources should in my opinion allow ATI the flexibility to withstand even the worst economic conditions.

Grade: B+

Value
The current value proposition is murky. I think that ATI is currently being treated as a growth stock. Its stock price swings wildly based on market and company news. Its trailing PE ratio based on last year’s earnings is around 26, but its forward PE is closer to a much more palatable 13. Its margins are improving, and ROE and ROA are still catching up as its revenues and earnings continue ramp up while the economy emerges from recession.

Grade: B-

Overall Grade: B+. While I like Allegheny Technology’s competitive position and management, I think that both the company’s finances and its current value proposition are less than ideal and will hold off on buying any more of the stock until the value position improves.

Full Disclosure: I currently own shares in ATI.

These are just a few of the many questions you may have about the state of affairs in Europe. Since admittedly this is not my area of expertise, I thought I would post links to a few interesting blog posts that I found on the topic.

1. http://business.financialpost.com/2011/11/01/wrench-thrown-into-the-rally/

2. http://business.financialpost.com/2011/11/01/greek-referendum-could-spur-recession/

3. http://newsoftoday1.wordpress.com/2011/11/01/greeces-pm-plays-politics-with-europe/

4. http://themarketreview.wordpress.com/2011/11/01/investment-strategies-change-due-to-european-sovereign-debt-problems/

So with this in mind, which stocks and industries should you be interested in this winter? Here are a few categories:

1. Natural Gas Utilities, especially those with operations in the Midwest and/or Great Lakes. This one is obvious – the colder the winter, the more people spend to warm their homes. Examine the options and pick your favorite.

2. Home Improvement Stores. Winter weather can wreak havoc on pipes, roofs, windows, and can cause homeowners to invest in energy-saving improvements. Lowe’s (LOW) and Home Depot (HD) are a virtual duopoly in the home improvement sector, so pick up one or both of these stocks if you like their fundamentals.

3. Companies that sell heating and cooling systems and/or components or parts for these systems. Unusually cold weather takes its toll on furnaces and heat pumps, and makes it more likely for systems to give out or need to be replaced early.

4. Companies that manufacture deicing products. This one is obvious – the more storms, the more deicing products people need. Compass Minerals (CMP) is one of these types of companies.

Finding winter stock ideas is as easy as thinking about which industries are affected by particularly cold winters. There is probably a lot that I haven’t covered, so if you can think of other ideas, that’s fantastic. Please share your thoughts below in the comments section.

Want more thoughts on how to come up with investing ideas? Follow this blog or check out the investing ideas section of my website, SmartStockResearch.com.

Despite today’s good news, there is still concern that the relatively modest U.S. GDP growth may not be enough to create long-term sustained growth that will reduce unemployment and cause confidence to increase to the point where businesses will start to invest more of their cash flow to grow their operations.

The other problem is that real incomes fell 1.7 percent during the quarter, and the GDP growth was fueled by increased credit card debt.  Savings also decreased during the quarter, and most increased spending was to pay for essentials such as utility and medical bills.

So my assessment is that the European news primarily drove the markets upward today.  Let’s hope that the European news was, in itself, enough to spark some increased business investment and economic growth.