• Fool Awards: Must-Read of the Year
• Fool Awards: Overall Most Foolish
• Fool Awards: Most Foolish Product
• Vote for the Fool Awards!
• Fool Awards: Most Promising New Technology
• Fool Awards: Financial Mind of the Year
• Fool Awards: The Biggest Surprise of the Year
• Fool Awards: Most Socially Responsible Company
• Fool Awards: Biggest Game-Changer
• Fool Awards: Best CEO of 2008
• 3 More Outrageously Cheap Stocks
• Fool Awards: Biggest Opportunity
• The Wrong Way to Invest in China
• It'll Get Worse ... but Not Forever
• Peabody Cross-Trains for the Ultimate Contest
• Chico's and the (New) Man
• Weird Financial News
• News to Sink Your Teeth Into
• This Week's 5 Smartest Stock Moves
• Thursday's Biggest Stock Stars
• The Case of the Deflating Dividends
• Orbitz Gets a Second Chance to Take Off
• Stocks With a Little Magic
• Burger King: Crazy Like a Fox or Just Plain Crazy?
• 4 Dynamic Dividend Stocks
• 5-Star Stocks Poised to Pop: Transocean
• 5-Star Stocks Begging to Be Bought
• How to Spot a Dying Company
• 5 Cash-Rich Companies Being Given Away
• 10 of the Most Efficient Companies on the Planet
• Blue Christmas at Best Buy
• Engineering Growth at Shaw Group
• Thanks for Nothing, FDA
• 5-Star Stocks Poised to Pop: AZZ
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• There's No Quit in This TEAM
• You're on the Clock, Ballmer
• Buy This Megatrend Today
• These Tech Stocks Will Make Me Rich
• 5-Star Stocks on the Upswing
• How to Shock-Proof Your Portfolio
• How Bear-Market ETFs Punished Investors
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• This Just In: Upgrades and Downgrades
• Fiscal Fitness ’09: One Phone Call, $198 in Debt Savings
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• 3 Reasons to Buy Dell Today
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Fool Awards: Must-Read of the Year

We all know it: 2008 was a terrible year. However, despite the fallout, some words of wisdom rose like phoenixes from the ashes of what we used to call Wall Street.

Let's revisit the nominees for must-read prose of 2008. There are some philosophical gems here, with thoughts we shouldn't forget anytime soon, if ever. After all, we have all been witness to historic times. Please vote at the end of this article on the one you think was the major "must-read" of the year. (And if you want a good laugh, be sure to check out this awesome, scathing goodbye letter to clients from hedge fund manager Andrew Lahde.)  

Fool Awards: Overall Most Foolish

I'd like to thank the Gardner brothers, my accounting professor ...

Wait, I'm not winning this award?

Oh, right. You, the reader, get to decide who takes the crown for Overall Most Foolish. If you're new to this whole Foolishness thing, keep in mind our core values: honesty, optimism, teamwork, innovation, and winning.

The field has been narrowed to five companies, each boasting characteristics that'll warm a Foolish heart. The winner, however, depends on your vote.

And the nominees are:

Costco (NYSE: COST)
Nominated last year in the social responsibility category, Costco has a sterling reputation for employee relations. That includes cross-training and promotion from within, which certainly boosts a sense of teamwork and belonging. The firm has also won awards for both customer satisfaction and its promotion of commuting alternatives.

Costco's winning ways are shining through in this brutal retail environment, prompting Kristin Graham to tap the firm in our Best Stock for 2009 contest. Brand loyalty, long-term vision, strong financials -- this firm is definitely a formidable contender.

Walt Disney 's (NYSE: DIS) Pixar
Fool CEO Tom Gardner has been preaching Pixar lately, partly on account of its two fascinations. All employees are fascinated with either animation or storytelling. What better way to foster teamwork and a winning streak than to have everyone share a common passion?

The results speak for themselves. Wall-E was one of the year's best films -- animated or otherwise -- and it made a lot of the live-action fare look lifeless (and brainless) in comparison. Pixar's commitment to continuing education at work also aligns with our Foolish mission.

Fairfax Financial (NYSE: FFH)
Prem Watsa, the man helming this insurance holding company, has already been identified as "reluctant CEO of the year" by one newspaper. While the Canadian has tended to shy away from publicity, Watsa was not shy when it came to defending against what he perceived to be a dangerous investing climate. Thanks in part to credit default swaps and other short bets, the company posted double-digit share price returns in 2008. Fairfax now has a massive cash pile to put to work. Lest you think Prem Watsa runs counter to our tenet of optimism, consider that he turned bullish and lifted his equity hedges in late November. Permabear, he ain't.

Google (Nasdaq: GOOG)
Ever since Google released its Owner's Manual back in 2004, we knew this company was special. That founding document spelled out several Foolish principles, such as a focus on long-term shareholder interests, not to mention the infamous "Don’t Be Evil" admonition. Google is easily the most innovative of the five nominees, judging by its search engine dominance.

The company, now twice-nominated in this category, finally garnered a formal recommendation from our Motley Fool Rule Breakers team in mid-2008. They see cloud computing as the next big step for Big Goo, and I'd offer up Google's moves in solar, geothermal, the smart grid, and plug-in hybrids as other promising pursuits.

Markel (NYSE: MKL)
Rounding out the group is a second insurer that we hold in high esteem. Crack open an annual report and you'll see a description of the Markel Style, a corporate culture that embraces every one of the Fool's core values, from honesty to winning, and requires a sense of humor to boot! Markel thus strikes many of us not only as a mini-Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), but a Foolish kindred spirit.

So, who gets your vote?

Fool Awards: Most Foolish Product

With the year 2008 in the books, we can look back on a year full of amazing new products and pick the choicest morsels. You have definitely heard of all of these top-shelf products, and you may even use a couple of 'em yourself (you lucky duck).

Without further ado, here are our five nominees for the Most Foolish Product of 2008:

Wii Fit
Nintendo 's (Pink Sheets: NTDOY.PK) Wii console still sells out very quickly every time a new shipment hits stores, more than two years after its launch. On that note, good luck finding a Wii Fit in your local Wal-Mart (Nasdaq: WMT), Fool. The game is a big seller for good reason, too. It's an innovative effort to firm up videogamers' physiques, and great fun to boot. There's nothing quite like it on the video game market today.

Amazon Kindle
Like Nintendo, Amazon.com (Nasdaq: AMZN) can't seem to make its digital book reader fast enough, and the product is perpetually sold out. The Kindle gives us quick and easy access to tons of books and magazines, all squeezed into a handy little gadget that fits in purses and briefcases everywhere. Traditional publishing may be in trouble, but Amazon is still breathing new life into the written word.

Tesla Roadster
We're sick of the gas-guzzling mega-SUV, and even Toyota 's (NYSE: TM) hybrids aren't quite green enough yet. Enter the Tesla Roadster, a sports car with roots in the Lotus Elise and investment backing from Google (Nasdaq: GOOG) co-founders Brin and Page. This is another hot seller with a 15-month waiting list, despite a $109,000 base price. You won't find too many all-electric cars doing 0-60 in less than four seconds, after all.

iPhone App Store
Apple (Nasdaq: AAPL) taught the world to sing in profitable harmony by launching a bustling marketplace where developers can sell custom software for the smash hit iPhone handset. Now, everyone from Google to Research In Motion (Nasdaq: RIMM) is racing to launch their own app stores and cash in on the programming skills of independent designers. What's the most sincere form of flattery, again?

Michael Phelps' swimsuit
Privately held Speedo rounds out the field, though it did nothing of the sort in Beijing 2008. The new LZR Racer swimsuits adorned Michael Phelps every stroke of the way to eight historic Olympic gold medals. All told, swimmers wearing that suit won 94% of the swimming gold medals in Beijing and set 23 new world records. Was it the suit, or something in the water?

Pick your favorite product and head over to the voting booth, dear Fool.

Further Foolishness:

Vote for the Fool Awards!

Welcome to the Second Annual Foolies. All right, it's technically the "Fool Awards," but I'm trying to start a trend here!

We'll be looking back on a miserable year and voting on the best ... even if "the best" is occasionally just a nice way of saying "the worst."  

Your votes will determine the winners in our 10 categories, and settle important debates like:

Without further ado, here are this year's Fool Award nominees:

Fool Awards: Most Promising New Technology

What's the next millionaire-maker megatrend? A technology so innovative that it'll disrupt everything that comes before it? In this year's Fool Awards, we're asking you. The nominees are ...

Streaming media
Researcher comScore says that 77% of all U.S. Internet users viewed at least one online video last year. Expect that figure to increase in 2009. At this week's Consumer Electronics Show in Las Vegas, LG Electronics will show off a new Web-connected TV that'll bring Netflix 's (Nasdaq: NFLX) Watch Instantly service directly to your screen.

Mobile computing
What's a computer? The definition changed in 2008. Apple 's (Nasdaq: AAPL) iPhone -- a mini-Mac in the palm of your hand -- became the top-selling U.S. handset. Google (Nasdaq: GOOG), meanwhile, stalked users in order to offer better location-based services, something we're sure to see more of in the year ahead. Advertisers are counting on it.

OLEDs
Not all light-emitting diodes (LED) are created equal. Organic LED, or OLED, screens are comprised of organic materials, and because they don't require a backlight of any kind, they use a fraction of the power of a typical LCD. So impressive were the OLED screens brought to market in 2008 that one, from Sony (NYSE: SNE), was named "Innovation of the Year" by Popular Science.

Clean energy and green crude
I'll remember 2008 as the year Virgin Atlantic pumped biofuel into a 747 and flew it from London to Amsterdam. Others will remember it as the year that we, the people of the United States, elected Barack Obama as our 44th president. The latter is more significant for dozens of reasons. For the cleantech industry, it likely means hundreds of millions in new funding. Funding that could help shepherd advances in solar battery technology and cleaner oil that's extracted from -- get this -- algae.

Cloud computing
More than a decade after the Web entered our national consciousness, in 2008, it threatened to transform how we interact with software. Amazon.com (Nasdaq: AMZN), Google, Microsoft (Nasdaq: MSFT), and salesforce.com (NYSE: CRM) either introduced or beefed up computing services accessed via your browser; 2009 promises more of the same, with big money investing to create an ecosystem for microblogging service Twitter.

So which will it be? Which technology do you think is most promising? Use the poll below to vote. Our editors will tally the votes and report back next week.

Fool on!

Fool Awards: Financial Mind of the Year

I recently came across an article in the Wall Street Journal titled, "One Fund in 1,700 Made Money in '08." Pathetic, I know. It was a rough year for just about everyone. Unless you were short financials or long Treasury bonds, you probably lost money in 2008. And probably a lot of it.

I say "probably" because there were, of course, a handful of financial masterminds who saw this whole thing coming years ago and ended 2008 looking like modern day Nostradamuses.

Without further ado, here are five of the most impressive financial minds of 2008.

John Paulson
Scored insanely huge returns over the past two years by betting against the housing market with credit default swaps -- essentially bets that certain pieces of debt will go belly-up. In 2007, one of his funds was up 590%, scoring him a personal payday of $3.7 billion. One-year wonder? Nah. One of Paulson's funds logged a 38% gain through mid-December.

Nouriel Roubini
"Dr. Doom" himself, this NYU Professor has been about as prophetic as anyone, calling the demise of Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) two years to the day before they collapsed. What's he predicting today? Just recently he wrote, "We are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst." Gulp. Serenity now, please.

Meredith Whitney                                                                                            
One of the first Wall Street analysts to tell the emperor he was making loans without any clothes on, Whitney made a bold prediction in late October 2007 that Citigroup (NYSE: C) would have to cut its dividend and face a $30 billion capital shortfall, waking investors up to the severity of the financial crisis. Her latest prediction is that credit cards will be the next shoe to drop, with issuers like Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) yanking more than $2 trillion in credit lines in the next year and a half.

Nassim Nicholas Taleb
Best-selling author of The Black Swan and Fooled by Randomness, Taleb has made a successful career belittling Wall Street's supposed ability to measure risk, not to mention most people's understanding of basic probabilities in general. The basis of The Black Swan is that what we consider to be improbable events are actually much more likely than we assume, and cause much more damage than we can handle when they happen. Hmm ... sound familiar?

His website includes a section titled, "Quotes & Warnings that the Imbeciles Chose to Ignore," including a prediction from several years ago that "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events 'unlikely'."

Peter Schiff
Takes the award as one of the earliest bears, predicting back in 2002 that the Dow will eventually hit 2000 and the Nasdaq will hit 500. There's now a cult following of his macro-level calls that predicts no less than the demise of the U.S. dollar and a spectacular surge in gold. If you get a chance, check out this YouTube video of Schiff in previous years take beating after beating by pundits heckling him as nothing more than Chicken Little for predicting a financial collapse. Who's laughing now, 

Fool Awards: The Biggest Surprise of the Year

"Unprecedented" has to have been the single most important word of 2008. More groundbreaking, earth-shattering, gut-wrenching, and pulling-our-your-hair news stories headlined 2008 than any other year since the Great Depression. And back then, we didn't have CNBC and a gaggle of market pundits shoving "end of the world" predictions down our throats 24 hours a day.

So what was the biggest surprise of 2008? We narrowed the biggest events of the year down to these five shockers.

Have a look, and don't forget to vote at the end.

Bear Stearns/Lehman Brothers bankruptcies
OK, so Bear Stearns didn't technically go bankrupt, but there's no question that's where it was heading had the Fed not orchestrated a merger with JPMorgan Chase (NYSE: JPM), giving investors their first taste of not just financial fallout, but hardcore government intervention. Lehman Brothers wasn't so lucky and actually did file for bankruptcy back in September -- the largest in history -- sparking what many believe was the catalyst that threw the economy into meltdown mode.

When Vikings attack
You want to see what systemic risk looks like? Head to Iceland. It taught us that an entire country can fall into the trap of reaching for too much return with the perils of leverage. Iceland's banks were leveraged to the hilt with a hodgepodge of foreign collateralized debt that went ka-boom once the global lending binge came to an end, virtually bankrupting the country and obliterating its currency, the Icelandic Krona.

Market volatility
Going back to 1928, six of the top 50 worst days -- and four of the top 50 best days -- for the Dow Jones occurred in 2008. The peak of the hysteria came during a 72-hour clown show when the Dow surged 11% on October 13, then fell nearly 8% on October 15. Even seemingly solid and dependable stocks like General Electric (NYSE:GE) and Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) weren't immune to the pandemonium, both collapsing in November before recovering ever so slightly late in the year. Rumor has it E*Trade might start issuing airsickness bags with each new brokerage account.

"No" Vote in House of Representatives' first attempt at $700 billion bailout
One of the largest -- and certainly the most controversial -- news stories almost never came to fruition when the House of Representatives voted down the $700 billion proposal to bail out the financial system back in September. The bill eventually passed, but just the threat of failure was enough to send stocks plunging 5% and credit markets back into the fetal position.

Fannie and Freddie fallout
The epitome of moral hazard, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) reminded us what happens when you mix shareholder-owned companies with an implicit government guarantee. The Treasury took a 79.9% stake in the two in September, shifting the risks from a decade of real-estate ballyhoo onto taxpayers.

Fool Awards: Most Socially Responsible Company

Socially responsible investing can be controversial, not to mention a little mushy when weighing criteria to judge corporations' attributes. But one thing's for sure: These crazy days outline why socially responsible companies can make good investments. After all, they're doing things right, and it stands to reason that many companies have been doing some seriously socially irresponsible things lately.

Depending on where you look, organizations' lists of top socially responsible companies can differ. For example, the "100 Best Corporate Citizens of 2008" list from The CRO (previously Business Ethics magazine) named Intel (Nasdaq: INTC) the top dog, while Fortune's roster of the most socially responsible companies has International Paper (NYSE: IP) at the top of the heap.

Still, some companies are universally recognized as socially responsible. They're the ones that have captured the public's imagination with the SRI attributes strongly linked to their brands and corporate missions -- and these companies clearly meant it to work out that way. So, with companies like that in mind, we present our Foolish nominees:

Starbucks: The coffee giant has great benefits for its employee partners, including health-care coverage. It's also been very aware of the needs of small coffee farmers through its CAFE initiative, and it tries to do business in an environmentally aware manner, through actions such as reducing waste with recycled paper sleeves instead of double-cupping. Starbucks has been included in The CRO's "100 Best Corporate Citizens" list for all of the nine years the list has been compiled.

Chipotle: Chipotle puts natural, organic ingredients in its burritos as part of its "Food With Integrity" program, and it also uses sour cream from dairy that's free of artificial growth hormones. For people who like to eat with ethics in mind, Chipotle's a relatively guilt-free fast-food treat. The company also provides health benefits, a 401(K) plan, and paid vacation time for its employees.

Google: "Don't be evil" is just the tip of the iceberg for Big G. The company is well known for its employee perks and benefits. In addition, Google makes high-profile environmental efforts, including its goal to be a carbon-neutral company. Its philanthropic arm, Google.org, was created to find ways to fight climate change, poverty, and emerging diseases. 

Whole Foods Market: Whole Foods is yet another company that keeps employee needs in mind, with caps on management compensation, an open-book policy on pay, and benefits that workers can vote on. Its mission to provide organic and natural foods is heavy on environmental awareness -- it was in the vanguard of companies seeking to reduce the use of plastic bags -- and it carries out a myriad of other green initiatives. It has also created non-profit organizations: the Animal Compassion Foundation and the Whole Planet Foundation.  

Green Mountain Coffee Roasters: Like Starbucks, Green Mountain has been a longtime proponent of sustainability, support of coffee growers, environmental initiatives, and good treatment of employees. It was a veteran of The CRO's "100 Best Corporate Citizens" list, too -- it made No. 1 in 2007 -- until the list began focusing solely on large-cap companies.

So, which one of these candidates do you think is the most socially responsible company? Vote for your choice below.

Fool Awards: Biggest Game-Changer

By any standard, 2008 was an extraordinary year for investors. As chroniclers of these events, we ran out of superlatives halfway through the year; those of us who weren't alive during the Great Depression were presented with unfamiliar situations at every turn. In that context, selecting the biggest game-changer is no easy task. Our nominees are:

Mortgage-backed securities/ CDOs/ CDSs/ ABSs, etc.
One of the pillars of the housing bubble was the notion that securitization enabled risk to be diversified among numerous participants in the financial system. That was true ... in the same way that an epidemic enables disease to be widely disseminated among the members of a population. Mortgage-backed securities and other products of Wall Street quants' alchemy were no philosopher's stone, as the relationship between risk and return defied every attempt to subvert it.

The death of investment banks
The investment bank business model seemed like a straw house in a hurricane in 2008. Between bankruptcy (Lehman Brothers ), acquisitions (Bear Stearns and Merrill Lynch by JPMorgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC), respectively) and conversions to bank holding companies, technically, there are no major investment banks left. Practically speaking, Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) are left standing – it remains to be seen how successful their new model will be in a new era of increased regulation and lower appetites for risk.

Nationalization
From mortgage giants Fannie Mae (NYSE: FNM) and Freddie Mac to insurer AIG (NYSE: AIG), the government went on a huge shopping spree-turned-rescue mission. Top banking institutions were partially nationalized, most prominently Citigroup (NYSE: C). As a major shareholder in the financial system, the government's role is a critical new variable for investors.

Deflation
When future economic policy-makers are kids, they go to bed worrying that deflation might be living in their closet. Deflation is tougher to tame than inflation, and it doesn't have the same self-damping mechanisms. In November, the Bureau of Labor Statistics announced the steepest one-month drop in the 61-year history of the consumer price index (CPI). All investors should hope we're able to stamp out this devil. The last period of significant deflation was during the Great Depression, and we don't want to revisit that.

The return of risk premiums
In the buildup of the credit bubble, investors appeared to project rising home prices and healthy economic conditions unto eternity -- uninterrupted. Risk had been relegated to a forgotten age. However, the Hydra burst out of its cage in 2008 with terrible ferocity. Take junk bonds, for example. In mid-2007, they were yielding less than 2.5 percentage points over Treasury bonds; last month, the spread peaked at almost 22 percentage points. Risk premiums are back. Big time.

The nominees are in; all that remains is for you, our reader, to select your biggest game-changer of 2008.

Fool Awards: Best CEO of 2008

It's never easy to lead a company. It's even harder when the economy is throwing you more knuckleballs than fastballs over the plate.

Take a breather, Warren Buffett. We're giving the defending 2007 champion a break this year. Not that there's anything wrong with Berkshire Hathaway (NYSE: BRK-B), mind you. We just don't want the Oracle of Omaha hogging up all of the hardware. 

In fact, none of the finalists from last year's list are in the running this time around. The five nominees for 2008 that we've culled for your consideration are:

John Thain
Thain cut his teeth as the master architect of the global consolidation at NYSE Euronext (NYSE: NYX) before moving on to Merrill Lynch. 2008 wasn't a great year for the investment banker, but at least Merrill made it to 2009 by getting great-for-the-times terms in its sale to Bank of America (NYSE: BAC).

Reed Hastings
Hastings has been able to consistently grow the subscriber base for his DVD rental service. With the value of unlimited rentals by mail -- and now digitally delivered -- proving to be recession-resistant, Hastings made my shortlist of winning chieftains. Fellow Fool Anders Bylund agrees.

Steve Ells
Ells has seen his burrito-rolling empire come undone lately. After a streak of routinely trouncing analyst profit expectations since its IPO, dinged margins have dealt Chipotle a few mortal blows in recent quarters. The upside here is that comps remain positive at the restaurant level. Finding an eatery concept that is growing without caving in to $1 burgers is a refreshing find these days.

Alan Mulally
Mullaly may seem like an odd name in the list, but consider Ford's fate relative to its two domestic automaker rivals. Sure, Mulally blew it by taking a corporate jet to the bailout hearings, but Ford will be the last stateside carmaker to tap the government's bailout money.

John Allison
Allison retired as CEO at the end of 2008, but the BB&T leader merits more than just a shot at a lifetime achievement award. He has successfully assembled a collection of community banks, conservatively guiding the company in a sector that went subprime-wild.  

To whom will Buffett hand the prize this year? That's where you come in. Vote for who you think should be the Fool's choice for Best CEO of 2008.

3 More Outrageously Cheap Stocks

With all of the recent volatility in the market, which stocks are outrageously cheap?

I found one recently, and I got to thinking about the others out there when I read money manager Bill Miller's comment that "the market abounds with good value." Of course, Mr. Miller also wrote last August that stocks were the cheapest they'd been since 1991 ... and after a brief rebound, they've gone right on dropping. Mr. Miller's fund has suffered thanks to core holdings in some recently deceptively cheap stocks such as eBay (Nasdaq: EBAY) and AES (NYSE: AES)

Given wary financial markets, a recent rash of writedowns, and a slowing economy, it should be clear that not all stocks that look cheap are cheap (with no disrespect intended to the talented Mr. Miller). Both Warren Buffett and John Hussman have recently affirmed that lesson.

There are, however, some individual stocks today that, for one reason or another, not only present "good value," but are outrageously cheap.

Back up the truck, people
What makes for an outrageously cheap stock? Here's my short list:

Of course, even amid today's unprecedented market environment, there are only a handful of large or mid-caps that meet those criteria, so if you really want to build an "outrageously cheap" portfolio, you may need to start thinking of yourself as a small-cap investor.

Welcome to the jungle
In truth, large caps such as Procter & Gamble (NYSE: PG) attract far too much investor attention to ever become inefficiently priced. That $180 billion pharmaceutical giant is tracked by 21 sell-side analysts.

You generally won't find as much interest among small caps, which is one of the reasons why -- given the criteria above -- Perini (NYSE: PCR), Columbia Sportswear (Nasdaq: COLM), and Gymboree (Nasdaq: GYMB) look outrageously cheap.

Company

EV/EBITDA

Cash on Hand

Investors Scared Because ...

Perini

5.1

$401 million

Housing bust and credit crisis mean reduced construction demand.

Columbia

5.2

$143 million

Declining consumer confidence will reduce spending on performance apparel.

Gymboree

3.8

$93 million

Worsening retail environment has hit profit margins.

Data from Capital IQ, a division of Standard and Poor's.

Yes, that last subhead was a Guns N' Roses reference
The reason we love being small-cap investors at Motley Fool Hidden Gems is because it's the one area of the market where, thanks to inefficiencies and lack of Wall Street interest, stocks can become outrageously cheap. And there's good reason to think that things will get better for all three of these stocks. Of course, in a down market like this one, that lack of efficiency can make for some gut-wrenching downside volatility.

But we're using current market conditions to recommend the market's best small companies -- stocks that should crush the market averages over the next decade or more.

To see our newest recommendations and top picks for new money now, click here to join Hidden Gems free for 30 days. There is no obligation to subscribe.

This article was first published on March 14, 2008. It has been updated.

Tim Hanson does not own shares of any company mentioned. Columbia is a Motley Fool Hidden Gems recommendation. EBay is a Stock Advisor selection. Perini is a Hidden Gems Pay Dirt choice. The Fool owns shares of Procter & Gamble. The Fool's disclosure policy is decidedly un-outrageous.

Fool Awards: Biggest Opportunity

Talk about a tough Fool Awards category. Coming up with candidates for the biggest opportunity of 2008 isn't easy when it felt like the only opportunity investors had was to lose money.

But throughout the year, we've looked for silver linings in the bear market. And while the vast majority of stocks fell in 2008, there were a few bright spots. So, without further ado, here are five nominees for your voting pleasure.

Discount retailers
For companies that offer low-cost alternatives on necessities like food and clothing, a struggling economy is actually a good thing. Discounters like McDonald's (NYSE: MCD), Wal-Mart (NYSE: WMT), and Family Dollar (NYSE: FDO) all posted gains in a losing market thanks to a growing base of budget-conscious customers. Investors who foresaw the recession got a nice reward.

Short selling
After years of taking it in the shorts, short-sellers finally got their revenge in 2008. Popular bear-market ETFs delivered amazing returns as stock markets tanked. And for those who bet against stocks like Sirius XM (Nasdaq: SIRI) and General Motors (NYSE: GM), the profits were especially sweet.

Cash
With interest rates at historic lows during much of the decade, cash got a reputation for being a waste of investment capital. Not so during 2008, though, as the credit crunch made having money on hand attractive again. While liquidity-starved companies suffered to raise capital, cash-rich giants like Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) swooped in to pick up assets on the cheap.

Tax-loss selling
No one ever said losing money was fun. But at least it'll give you a break on your tax return come April. Yes, in portfolios full of red ink, the best many investors could do to salvage something amid the carnage was to sell and grab valuable capital losses to offset past gains and other income.

Stocks
Wait a minute -- stocks did terribly in 2008! Yes, but for those still looking to buy stocks both now and in the future, lower share prices meant more bargains for value-conscious investors. Although you may not see quick gains on shares you bought last year, cheap stocks may prove to be the most valuable long-term opportunity you could find in 2008.

But that's just one opinion. What do you think was the biggest opportunity in 2008?

The Wrong Way to Invest in China

According to Morningstar, the iShares FTSE/Xinhua China 25 Index ETF (FXI) is not only one of the 25 most popular exchange-traded funds on the market today, it's also the most-traded China-focused ETF. Over the past three months, the FXI has traded an average of more than 40 million shares each day.

"That's great," you might think. "Investors are finally realizing that China is a place where they need to be invested." That might be true, but if so, they're going about it the wrong way.

Seriously red tape
Some investors confuse the FXI with a proper way to invest in the Chinese growth story. That just isn't the case, for a variety of reasons.

By investing in FXI, you're not sufficiently tapping into the entrepreneurial sprit of the Chinese people. See, FXI tracks a FTSE/Xinhua index mainly comprising state-owned enterprises (SOEs). In fact, of the top 10 holdings of the exchange-traded fund, 10 are SOEs (or are subsidiaries of SOEs, which for my purposes are one and the same).

In terms of past performance, that hasn't been so bad. Despite the recent plunge in the Chinese markets, which has sent names like PetroChina and China Mobile down considerably, the iShares FTSE/Xinhua China 25 ETF has averaged returns of 12% per year over the past three years, versus the S&P 500 -- tethered to our own mega caps like JPMorgan Chase (NYSE: JPM) and Hewlett-Packard (NYSE: HPQ) -- which has lost 9% a year over the same period.

But while FXI holdings like China Life Insurance and Sinopec have outpaced American counterparts like Torchmark (NYSE: TMK) and Anadarko Petroleum (NYSE: APC) since January 2006, looking to the future, FXI isn't the right train on which to hitch your China investment dreams.

A little background
SOEs have traditionally been the dominant players in the Chinese economy. In 1958, during the days of Chairman Mao, more than 97% of the Chinese economy was under the control of the government (PRC) through the use of SOEs.

Granted, things have changed over the past 50 years, following the economic reforms of Deng Xiaoping in the late 1970s and '80s. Today there are far fewer SOEs, but they still make up a significant chunk of China's gross domestic product and are mostly found in the energy, telecommunications, and financial sectors. The government keeps many of them alive by infusing them with capital, and one of the ways it does this is by -- wait for it -- taking them public.

The Chinese government has certainly reduced its ownership of some SOEs, but given the size of those companies and the size of the government's remaining ownership, it could be a long time before those SOEs are fully privatized. Just imagine if the PRC decided to suddenly dump its huge stake in China Life Insurance into the public markets. It would be an utter disaster for those shares.

The bottom line is that, despite the loosening of the PRC's grip, SOEs still do not put shareholder interests first. Their motivation is still at least partly political, so you're better off looking for Chinese companies that have your interests at heart.

This one will go to the hares
While the SOEs join the free markets at a tortoise's pace, non-SOE Chinese companies like Focus Media Holding (Nasdaq: FMCN), LDK Solar (NYSE: LDK), and SINA (Nasdaq: SINA) are flying by them in terms of innovation and ability to react to global economic movements. Moreover, all three of these Chinese companies are led by entrepreneurs who represent the Chinese growth story. These are the types of companies -- not the SOEs -- that may turn out to be some of the best stocks of the next 10 years.

For this reason, the Motley Fool Global Gains team is looking beyond the realm of Chinese SOEs. That's why the team made their second trip to China last year to meet with some of the country's most promising companies. The team also made stops in Vietnam, Indonesia, and Singapore. If you'd like to read their reports and take a peek at all the Global Gains recommendations, a free 30-day trial of the service is yours. Click here to get started. 

This article was first published June 3, 2008. It has been updated.

Todd Wenning bets you he can throw a football over them mountains. He does not own shares of any company mentioned. Focus Media is both a Motley Fool Global Gains and Motley Fool Rule Breakers selection. JPMorgan Chase is a Motley Fool Income Investor recommendation. SINA is a Motley Fool Stock Advisor pick. The Fool's disclosure policy has large talons.

It'll Get Worse ... but Not Forever

With our economy in such a mess, I'm often asked what I expect in the months or years to come. Well, I have no crystal ball, but I suspect that there will be a hefty serving of good and bad in our future.

Let's start with the bad. We're in a recession, with lots of people out of work. Recessions do end, but it can take a while. Part of the problem is a domino effect. Think of all of those unemployed people. They're spending less, and that will put pressure on companies that want to serve them, especially those that sell expensive items and purchases that can be put off, such as automobiles, dishwashers, cruises, luggage, and even computers.

We've already seen some businesses fail in 2008, with Best Buy (NYSE: BBY) and Bed Bath & Beyond (Nasdaq: BBBY) waving goodbye to competitors Circuit City and Linens 'n' Things. Some experts see 2009 featuring many more failures. Among those feeling the strongest pressure will be luxury retailers. Some chains won't fail, but they will cut back. Already, Ann Taylor (NYSE: ANN), Foot Locker (NYSE: FL), and Sprint Nextel (NYSE: S) are closing many locations, and those closings will put even more people out of work.

Meanwhile, the unemployed will spend less, but some expenses won't be avoidable -- such as food, utilities, and shelter. Many will charge lots of purchases on credit cards but will be unable to pay. This will put pressure on financial-services companies, such as Capital One Financial (NYSE: COF) and JPMorgan Chase (NYSE: JPM). Oh, and then there are all of those people who could soon default on their mortgages. They may simply be unable to pay because of a job loss, or perhaps their mortgage featured an interest rate set to surge, and their payments become much higher as a result.

Even public employees have reason to be nervous. With fewer wages being earned and less spending going on, tax revenues will be smaller. Local governments may find themselves having to make do with less, and some have already started looking at downsizing as a necessary measure.

See? One thing leads to another, and things may very well get worse before they get better. But even within the bad, there's some good.

The good
In these tough times, both consumers and businesses are finding that they have to toughen up and develop more discipline. Consumers are saving more -- probably just in case they lose their jobs, for one thing. They're spending less -- which in many cases is good, because recent high credit card balances suggest that many Americans have been buying much more than they could really afford. And they're likely to start shopping more carefully, as they seek out bargains and values.

Meanwhile, businesses are also looking to trim where they can. Lenders are being smarter about the loans they make, which will probably lead to fewer defaults in the future. Some businesses, faced with challenges, will come up with revolutionary new ways to do things, and they'll save or make more money in the process. (Some of these will be Rule Breakers companies -- learn more about how some of them offer the highest possible returns.)

A final bright side to the recession is that so many stocks are on sale right now. I know you've heard us say it before, but this might be the best opportunity of the past 35 years.

What to do
So what should you do? Well, keep on getting smarter about money. If you have money you won't need for at least five years, consider investing it in some beaten-down but healthy stocks. Tend to your retirement plan, too -- making the most of your 401(k), for example. Take a long-term view for your investments, and remember that every past recession has eventually ended, followed by periods of increases in the stock market.

Peabody Cross-Trains for the Ultimate Contest

Think of the companies you own as athletes, and the global financial crisis as a sort of megatriathlon. Now would be a great time to discover whether your stocks are natural-born runners or injured couch potatoes.

Within the coal sector, global leader Peabody Energy (NYSE: BTU) is cross-training for the contest by responding quickly to changing market circumstances and trimming production as necessary. This week, the company announced plans to reduce U.S. Powder River Basin coal production by about 10 million tons to 190-195 million tons in 2009, while reducing Australian metallurgical coal production by about 2 million tons to 22-24 million tons. Compared to the scale of production cuts we've witnessed throughout the steel and metal-mining industries, these measures look more like a haircut than an amputation.

Powder River Basin coal from the western U.S. is the cheap stuff, currently fetching about $13 per ton on the spot market compared to more than $80 for the higher-quality Appalachian varieties. Peabody Energy, Arch Coal (NYSE: ACI), and Foundation Coal Holdings (NYSE: FCL) are all significant producers of PRB coal, but for now it appears that electric utilities in the U.S. have amassed a surplus inventory. For context, though, consider that Peabody's 2009 production forecast is equivalent to the company's 2007 U.S. mine production, while the shares presently trade near 3 ½ -year lows.

For rail companies like Burlington Northern Santa Fe (NYSE: BNI) and Union Pacific (NYSE: UNP) -- both of which ship large quantities of Powder River Basin coal -- I believe this sort of news could be more damaging than for a globally diversified miner like Peabody. Rail companies largely skirted the early stages of the financial meltdown on the strength of robust coal shipments to offset declines in construction materials and automobile cargoes.

Without question, the drop-off in global steel demand has been dramatic in the near-term, making an Australian met coal production cut only prudent. However, a growing number of signs from companies like POSCO (NYSE: PKX) and Nucor (NYSE: NUE) are pointing to at least some measure of demand resumption once stimulus-related spending heats up in China, the U.S., and perhaps elsewhere. Peabody referred to stimulus spending directly as an important component of 2009 production guidance, and remains "confident in the mid- and long-term outlook for coal demand."

I agree, and continue to view this Fool's king of coal as a well-honed athlete.

Further Foolishness:

Chico's and the (New) Man

Chico's (NYSE: CHS) may have reported some dismal same-store sales for December yesterday, but the retailer's shares rose significantly anyway. Maybe some investors were heartened by word that the retailer was getting a brand new CEO.

Same-store sales dropped 12.4% in December, although such dramatic drops in monthly comps are, unfortunately, nothing new at Chico's. Of course, I suppose that might look like a minor bump, considering many retailers reported abysmal December figures -- look at Abercrombie & Fitch (NYSE: ANF), with its 24% plunge in comps -- but then again, Chico's has been lagging on the same-store sales front for several years now.

Meanwhile, Chico's named David Dyer to replace CEO Scott Edmonds, who has retired. Dyer has been a board member at Chico's and does have retail experience. He previously served as CEO at Tommy Hilfiger and Land's End (which was purchased years ago by Sears (Nasdaq: SHLD)).

Edmonds was a veteran at Chico's, although the last several years certainly didn't allow him to leave on a high note, so shareholders probably aren't shedding many tears over his departure. Chico's five-year chart tells quite a tale; remember in February 2006, when the stock topped out at about $48 per share? It's hard to remember those days now that Chico's has needed a turnaround for several years running, and said turnaround still doesn't really seem all that forthcoming, especially with the current economic headwinds battering so many retailers.

I once thought that Chico's looked like a beaten down value stock, but I have since given up on that notion. I am just not keen on the specialty retailers that aim for older female customers in general; these include not only Chico's but retail names like Ann Taylor (NYSE: ANN), Talbots (NYSE: TLB), and Coldwater Creek (Nasdaq: CWTR).

All of these companies may be having their share of problems getting the right merchandise on the racks lately, but I also strongly believe that older female shoppers have quite a knack for shutting their wallets with a resounding snap when times are bad. While Chico's may be the best candidate for a turnaround in its niche, I'd prefer to look for value retail stocks elsewhere. A new CEO may be able to turn the ship around, but investors should remember the serious challenges this retailer faces; a fresh face at the helm is not likely to be enough.

Weird Financial News

Lest you focus just on the more serious stories in the financial press, such as iPhones at Wal-Mart (NYSE: WMT) or eBay 's (Nasdaq: EBAY) sagging results, or on how you might buy stocks on layaway, here's a brief recap of some of the more unusual financial news out there:

Enough silliness, though. We at the Fool aim "to educate, amuse, and enrich." I invite you to read any other article in Fooldom for a little education and some enrichment. Consider starting with this timely piece: "The Market's 10 Best Stocks."

News to Sink Your Teeth Into

There always seems to be restaurant news on the menu. As we do every week, let's review some of this week's more appetizing stories.

1. 10 friends for a Whopper
Burger King (NYSE: BKC) is at it again. The fast-food giant's cutting-edge marketing campaign has taken another daring promotional turn. Burger King launched a Facebook app that will reward users with a free Whopper if they delete 10 of their friends.

Unlike the quiet "defriending" process on the popular social-networking site, the 10 deletions will be listed in the public-activity feed as being "sacrificed" for a Whopper. This may sound like a clever idea, but you know it's going to ruffle a few feathers in the Facebook community. The site also is unlikely to appreciate seeing its viral networks shrink in the pursuit of a burger.   

2. Goodbye, Ruby Tuesday
A disappointing quarter out of the casual-dining niche shouldn't surprise anybody. However, even with lukewarm expectations, Ruby Tuesday (NYSE: RT) delivered a stinker on Wednesday. The company posted a steep fiscal second-quarter loss, weighed down by $56.2 million in pre-tax charges for the restructuring of its portfolio and for writing down its goodwill. Revenue also fell, bogged down by a whopping 10.8% slide in comps at company-owned eateries.

"Fiscal 2009 is the most difficult year since our founding nearly 37 years ago," its CEO notes. The company expects comps for all of fiscal '09 to fall by 9% to 10%.

3. Sonic unleashed
Drive-in chain Sonic (Nasdaq: SONC) posted a fiscal first-quarter profit of $0.12 a share this week. Earnings came in well below the $0.22 it rang up a year earlier. Comps fell by 3.6% during the period, a grim contrast to the larger fast-food chains that have no problem luring penny-pinching patrons. CKE 's (NYSE: CKR) Carl's Jr. did post a small dip in comps for December, but that drop was more than offset by healthy gains at its Hardee's chain. 

So what's eating Sonic? Is it the whole "eat in the car" thing and the fear of consuming too much fuel in a soft economy? One would think that folks consume more gas in a busy BK drive-through lane than they do by parking in front of a Sonic.

Either way, Sonic isn't taking any chances. It's following the fast-food herd by offering up a value menu as a way to attract deal-seeking customers.

4. Crossing the border
Chipotle Mexican Grill (NYSE: CMG) (NYSE: CMG-B) is expanding overseas. The popular burrito-rolling chain announced that it will open its first location in London by the end of the year.

Chipotle is also spicing up its executive ranks. CEO Steve Ells will now be sharing the helm, as president and COO Marty Moran is being promoted to co-CEO. Moran has been with Chipotle for four years. The quick-service chain is also hiring its first chief marketing officer, a good move given decelerating comps in recent quarters.

5. Rocky Mountain lows
We're even cutting back on chocolate these days. Rocky Mountain Chocolate Factory (Nasdaq: RMCF) delivered weak third-quarter results. Revenue fell by 15%, with comps at franchised units slipping by 8.1%.

The more problematic part of the report is that the pounds of product purchased fell by a whopping 24% on a same-store basis. If orders are falling substantially more quickly than sales, franchisees must be fearing the worst in this economic slump as they scale back on their inventory levels.

Rocky Mountain is still profitable, though. The end result for the quarter is net income of $0.14 a share, less than the $0.19 a share it earned a year earlier but still firmly in the black. 

Check out this week's dessert specials:

This Week's 5 Smartest Stock Moves

If you're feeling down this week, cheer up. The world wasn't all layoffs, missed earnings, and guidance knockdowns, as these upbeat headlines demonstrate:

1. The chemicals between us
Providing a welcome break from disappointing quarterly results, Monsanto (NYSE: MON) blew past Wall Street expectations. The agricultural-chemicals titan saw its fiscal first quarter earnings more than double.

As a result of the healthy start to its fiscal year, Monsanto also raised the low end of its annual guidance.

It's easy to see why Monsanto is a winner. The company's seeds and herbicides are in demand, since there are still fields to harvest. We can bellyache all we want about the economy, but we still have to eat.

2. Scoring a TD in the think tank
It's been four years since the leading discount brokers last went on buying sprees. The industry returned to its sector-consolidating ways yesterday, when TD AMERITRADE (Nasdaq: AMTD) agreed to buy fast-growing rival thinkorswim Group (Nasdaq: SWIM).

I like this move for several reasons:

The purchase also takes place while the industry's publicly-traded companies are trading at low prices, despite showing healthy gains in trading activity.

3. Sirius is more star than dog
There was a double shot of positive news from Sirius XM Radio (Nasdaq: SIRI) this week. The first piece of good news is that the company was able to swap equity for $6 million in debt due to be repaid next month. That may not seem like much, but the fact that Sirius keeps paying down its massive debt load, and talking creditors into becoming investors, will go a long way toward battling bankruptcy concerns.

The other upbeat item is that the company finally introduced its first interoperable radio yesterday. Putting out a radio that can receive both Sirius and XM is an original concession that regulators required for winning merger approval, but the move will also help the satellite radio operator.

When the receivers hit retailers early in the springtime, consumer electronics chains and department stores will be able to promote something truly new -- a product that doesn't involve educating the buyer until a decision is made between the competing platforms. It should also work wonders for the conversion rates at the auto-dealer level, once interoperable car receivers give drivers a seamless choice.

4. Prepaying the tolls
There is apparently money to be made in catering to both diehard gamers and Clamato-sipping vampires ready to see Twilight for the fiftieth time. GameStop (NYSE: GME) and Hot Topic (Nasdaq: HOTT) were two of the rare chains to post positive comps over the holidays, scoring same-store sales gains of 10% and 4%, respectively.

GameStop scored as video game buffs picked up on the latest titles, also taking advantage on the hardware side as a result of greater Wii availability and lower Xbox 360 prices. Goth haven Hot Topic has bounced back in recent months, perhaps inspired by the success of the Twilight franchise making its emo garb and accessories more fashionable.

5. Grounded for too long
Maybe it's finally time to believe in Orbitz Worldwide (NYSE: OWW). The company announced a shakeup at the top of its ranks, along with cost-cutting initiatives that should shave another $20 million to $25 million annually, in addition to the $20 million in savings it announced two months ago.

Incoming CEO Barney Harford is young, but he has worked with and advised many of Orbitz Worldwide's rivals. Since Orbitz has been a historical laggard, knowing how the competition ticks can only be a good thing. The market likes the change in scenery, and so do I.

Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Thursday's biggest winners among the stocks with a top rating of five stars.

Without further ado:

Company

Yesterday's Gain

Oilsands Quest (AMEX: BQI)

17.65%

Chicago Bridge & Iron (NYSE: CBI)

11.53%

Yingli Green Energy

10.35%

Silver Wheaton (NYSE: SLW)

7.71%

EMC (NYSE: EMC)

6.35%

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday, like one-star stock Palm (Nasdaq: PALM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 125,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: In the first 20 months after its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 95% of the 232 All-Stars who've rated Chicago Bridge have a bullish opinion of the stock. Two months ago, one of those members, narf029, explained why the engineering and construction company looked bound to bounce back:

Chicago Bridge and Iron has a very low P/E for the forward 12 months, on top of a very high projected growth rate. This stock has been incredibly unproductive for the past year, which leads to it being battered down and a great current value. I love it for the next year, and we'll see where things go after that.

Shares of Chicago Bridge are up 25% since that call.

The bullish lesson?
Always be on the hunt for stocks priced for imperfection. It's virtually impossible to call "bottom" on a stock, but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well. As legendary value investor Sir John Templeton famously said, "The time of maximum pessimism is the best time to buy."

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are five of Thursday's biggest one-star decliners:  

Company

Yesterday's Loss

Trex

9.13%

Zale (NYSE: ZLC)

7.64%

Colonial Bancorp

6.39%

Brookfield Homes

5.67%

Saks

5.20%

While yesterday's plunge in highly rated American Oriental Bioengineering (NYSE: AOB) may have caught our community off guard, one-star stocks are fully expected to fall hard: Over the 20 months after CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In late October, for instance, CAPS All-Star RXDOC73 shared these bearish musings about Zale:

High priced merchandise in this time of financial hardships and job layoffs will certainly keep shoppers away from this retailer. Their black Friday will probably remain red and continue into 09.

Shares of the jewelry retailer are already down 85% since that call. In fact, yesterday's drop came after the company reported a 22% same-store sales drop in December -- consistent with RXDOC73's warning.

The bearish takeaway?
Get to know your environment. Different economic conditions affect different businesses in different ways, so make sure you're aware of how sensitive your own portfolio is to the current situation. When your stocks are flying, it's easy to become complacent as an investor, but that's exactly when you need to make sure those gains are sustainable going forward.

The final Foolish move
Investors often focus strictly on stock price movements without realizing that developing a proper stock-picking process counts most.

Over at Motley Fool CAPS, thousands of investors are Foolishly sharing insightful investment tips to help, above all else, identify tomorrow's big movers. Over time, consistently reverse-engineering winning -- and losing -- stocks will help you become a more Foolish investor.

Log in to CAPS today and start participating. It's absolutely free and a lot of fun!

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

The Case of the Deflating Dividends

I knew there was something fishy going on last spring, and I'm not talking about tuna. Some companies' dividends were beginning to take on a dot-com appearance. You know the look -- it's a lot like a shiny, soapy ball, holding a whole lot of nothing. And I think some of those companies still have that unfortunate look.

A few of the companies I was watching back then were clearly spending money they couldn't afford to spend, like my neighbor with the two big BMWs did. Yeah, everybody was doing it, but these companies weren't buying widescreen TVs and oversized Toll Brothers mansions like the rest of us.

They were blowing it on those dividends.

My first clue: General Motors (NYSE: GM) was still paying dividends -- $0.25 a share, last paid on May 14. Yeah, May 2008. You think maybe the GM folks could have found another use for that money?

GM might have had its reasons -- the current management could be smarter than it looks. But that tidbit of information got me poking around a little. Lots of people suspected that Lehman Brothers was in big trouble, even back in the spring, but they were still paying dividends -- $0.17 a share, last paid in August. They were buying back their stock, too, as recently as the first quarter of 2008.

Think their creditors might like to have some of that money back?

Why would they do this?
To keep up appearances, maybe -- to try to buy themselves time to dig out of their jam before they got sent down to the Pink Sheets. But it's starting to look as though lots of companies were paying dividends or buying back stock with money they should have put in the bank instead. According to The New York Times: "From the fourth quarter of 2004 through the third quarter of 2008, the companies in the S&P 500 -- generally the largest companies in the country -- reported net earnings of $2.4 trillion. They paid $900 billion in dividends, but they also repurchased $1.7 trillion in shares."

I'll save you the trouble of doing the math: That's $200 billion-with-a-b more paid out than earned. Not all of those companies were in trouble, of course … but I'll bet some had senior executives whose compensation was tied (maybe via stock options) to their company's share price.

What with the past few years being an easy-credit bender, some of that money was probably borrowed -- likely through lines of credit that, like balloon provisions in mortgages, had a few years of easy payments followed by a renewal or refinancing requirement. Such arrangements weren't uncommon.

But you can bet they're less common now. And that's one more reason to be wary of big dividend yields.

Income is great -- if you can get it
When the market is way down and you're worried that it might go down further, dividend stocks start to look attractive. Reinvest those dividends, and your position will grow on its own -- all the faster if the stock's price drops lower for a while. And unlike bonds, good stocks will rise in price once the market gets turned around.

But the catch is obvious: The company has to continue paying the dividend for all of this to work, and being able to do that is far from a given these days. According to Standard & Poor's, 288 publicly traded American companies cut or eliminated their dividends during the last quarter of 2008, versus 239 companies that instituted or raised dividend payments. That's the first time since 1958 that cuts outnumbered raises, and I don't think the next few quarters are going to look a whole lot better.

Sometimes the stocks to avoid are obvious. To me, it's a no-brainer that companies such as GM (24.2% dividend yield), Citigroup (NYSE: C) (8.9% dividend yield), and American International Group (NYSE: AIG) (53.3% dividend yield) aren't likely to pay out a lot in the next few quarters. Those are well-known examples, but if you run a dividend stock screen looking for fat yields, you'll find lots of lesser-known companies in the same boat -- a beaten-up share price that makes now-cut past dividends look huge. Be wary of those.

But even reasonable-looking numbers from reasonable-looking companies may be unsustainable. There's a case for buying Intel (Nasdaq: INTC) as a long-term hold right now, but not for its dividend -- I'd be awfully hesitant to count on that 3.9% dividend yield, given the company's 23% drop in revenue last quarter. Similarly, cruise line Carnival (NYSE: CCL) seems likely to take on water in the coming quarters as consumers hold onto their surplus pennies, and its 6.6% dividend yield could slip beneath the waves as well. Likewise for floofy-sunglasses maker Luxottica (NYSE: LUX) and its 3% yield, and teen favorite Abercrombie & Fitch (NYSE: ANF) at 3.1%. Clearly, while there's much to be said for holding dividend stocks right now, it's essential to buy very carefully.

Finding yields that are sustainable in the current environment is the full-time focus of the Fool's Income Investor team right now. If you'd like to see their best ideas for new money today, click here for a free 30-day trial. There's absolutely no obligation to subscribe.

Orbitz Gets a Second Chance to Take Off

I believe in second chances.

As critical as I've been about Orbitz Worldwide (NYSE: OWW) since its IPO two summers ago, I have to applaud the company's moves this week. Slashing expenses and bringing in a young yet globally seasoned CEO will go a long way toward making the troubled online portal an investment worth believing in. I went ahead and tagged the stock with an "outperform" rating in Motley Fool CAPS this morning.

Orbitz has been a disaster through most of its publicly traded life. It went public at $15 in July 2007. It didn't help that it began by posting losses, while also failing to keep up with the revenue growth of rivals Priceline.com (Nasdaq: PCLN) and Expedia (Nasdaq: EXPE).

To cut a long story short about a stock you should have shorted long ago, Orbitz shares traded as low as $2 last month.

Like many stocks pounded during 2008, Orbitz has been bouncing back lately. Its stock has nearly doubled since December's low. Bottom-feeders may be inclined to take their profits, but I think things can get even better.

Let's talk about the new CEO. Barney Harford is just 37 years young, but he packs an impressive resume. He spent seven years at Expedia, working his way up to eventually watch over the company's Asia Pacific division. This led to his being named to the board of directors at Chinese travel portal eLong (Nasdaq: LONG), where he served until last year. He also did some advisory work for popular travel comparison shopping site Kayak. In other words, Harford has seen the inner guts of many of Orbtiz's competitors and is well-versed on the global opportunities available.

Orbitz may never achieve the brand style points of Priceline or the story-stock allure of China's Ctrip.com (Nasdaq: CTRP). It doesn't have to. Compared with other stateside travel sites, only travel publisher Travelzoo (Nasdaq: TZOO) trades at a lower enterprise value-to-revenue ratio. Achieving profitability and cleaning up its leveraged balance sheet can work wonders for Orbitz's share price.

Harford's introduction alone won't make it happen. However, the company also announced that it would trim as much as $25 million from its annual costs. That is on top of $20 million in overhead cuts that the company introduced two months ago.

It may seem unlikely that a company scaling back is preparing to ascend, but Orbitz has the sober attitude and the potentially electrifying chief to finally get this stock heading in the right direction.

Other ways to fly:

Stocks With a Little Magic

Since fund manager Joel Greenblatt published his investing tome, The Little Book That Beats the Market, in 2005, the stock market has hit historic highs and is once again exploring depths not seen since the bursting of the tech bubble.

The book marked a unique point for investors because it gave them insights into investing strategies a value investing master himself used that are also easily replicated. Greenblatt has achieved phenomenal results over the past two decades, besting even the performance of Warren Buffett.

The strategy is deceptively simple: Buy undervalued, high-performing companies and hold for a year. Rinse and repeat. But what if we can augment Greenblatt's methodology? Below we've used a "magic formula"-like screen that approximates the pre-tax earnings and return on capital criteria he lays out, but adds to it by looking for companies with top ratings of four or five stars from Motley Fool CAPS.

Over the first 20 months of tracking the collective intelligence, the data showed that newly minted five-star stocks offered the best opportunities for investors, whereas the lowest-rated companies fared the worst. A five-star rating is the highest a company can get in CAPS. Combining those rankings with the criteria that Greenblatt suggests should give us winning investments that may just produce some outsized returns.

Here are a few companies that showed up when I ran this screen recently.

Stock

Pre-Tax Earnings Yield %

Pre-Tax Return on Capital %

Recent Stock Price

CAPS Rating

Altria (NYSE: MO)

45%

>100%

$15.10

*****

CTC Media (Nasdaq: CTCM)

29%

>100%

$5.29

****

Dollar Financial (Nasdaq: DLLR)

21%

>100%

$9.95

****

Mechel (NYSE: MTL)

44%

>100%

$4.50

*****

MEMC Electronics (NYSE: WFR)

34%

>100%

$16.57

****

Source: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. Pre-tax earnings yield is inverse of EV/EBIT. Pre-tax ROC is EBIT divided by tangible capital employed.

Of course, we don't think you should just rely upon this list of stocks as a list of companies to buy. Due diligence on every investor's part is always a smart requirement. Yet it provides us with a narrowly focused list of companies upon which to concentrate our efforts. So, let's see what CAPS members have to say about a couple of these.

A little bit of pixie dust
Just when it looked like we had walled off our worries about contracting cancer from second-hand smoke by banishing smokers to the outer perimeters of bars, restaurants, and office buildings, the fear mongers have returned, concocting new dangers that threaten to undermine the well-being of the Republic and attack the profitability of Altria, Lorillard (NYSE: LO), and Reynolds American (NYSE: RAI): third-hand smoke! That's what you supposedly get from exposure to smoke on someone's clothes, fabric on your couch, etc. If you're still smelling smoke after the fact, then you're in danger.

CAPS member windyposter thinks that the government ought to just butt out, but notes that Altria should do well regardless of the anti-smoking crusade because of the demand for tobacco:

this is a stable stock. for anyone that has traveled extensively it will be clear that these wonderful little white sticks hang out of the mouths of the majority of people all over some of the largest nationalities and even continents on the planet. very few governments are trying...or even worried about trying to stall the continued growth of the use of this product.

Silicon wafer maker MEMC Electronics has been hit hard by the market's softening for electronics and solar panels. As the recession cuts into demand, analysts think that MEMC will need to soften a bit itself, at least when it comes to pricing, if it wants to continue seeing revenue growth.

CAPS All-Star member BSHumphreyII thinks the market has overreacted to a single earnings miss and that its financials continue to look solid:

They've been beaten to death in the last year, probably unfairly. One quarter of declining year-to-year earnings in at least the last 13 should not translate to a 4.5 P/E. Their balance sheet looks fantastic, and their returns on equity and capital are in the mid 20s - very solid. Cash flow from operating activities is trending up strongly, and with a lot of long-term sales contracts lined up, this will probably continue. There are some senile industries in the U.S. that might not recover from the recession (such as automobiles), but semiconductors are not one of them.

Beat the street
You'll need to read more than a few pages of this book to make your buy or sell decisions. So start your own research on these stocks on Motley Fool CAPS, where your opinion can still save the day. Read a comp