Today's article is the fourth in a 12-week series where I recommend four stocks from four different market caps. At the end of 12 weeks, readers will have 48 recommendations and one fully diversified portfolio. A little warning: Should anyone actually choose to duplicate this imaginary portfolio, my suggested holding period is forever, much like Warren Buffett.

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Micro Cap
If you like barbecue, you've probably heard of Famous Dave's (Nasdaq:DAVE). It has 170 restaurants in 36 states including a new location at Times Square in New York. The company's had its moments in recent years, both good and bad, as it's grown from a small outfit with a few locations to a cross-country chain. In 1999, DAVE had sales of $47.6 million and in 2008, $140.4 million. There's been growth, but it hasn't always come with profits. In five out of the past 10 years the company's taken impairment charges to write-off closed restaurants. This past year wasn't great with income from operations declining 14.3%, from $10.4 million to $8.9 million.

Although Dave's is still experiencing declining sales, its second-quarter results show that it's figured out a way to make money despite this sales slump. For instance, although revenues dropped 3.3% to $70.1 million in the first six months of the year, Dave's grew net profits year-over-year by 19.4% to $3.6 million. This is a great result when you consider its same-store sales were negative 9.4% for those company-owned, and negative 10.9% for its franchised locations. In this environment I believe Dave's has done a commendable job and once the economy picks up, so too will sales.

Small Cap
In a previous article, I highlighted three companies making money despite declining sales. Lexmark (NYSE:LXK) was one of those and so I'll be brief with my commentary. This is one of those businesses that I continue to believe will dig itself out from under the mess it's currently in. The problem here is no one is buying printers and thus printer cartridges. That's a double whammy. So, why do I have so much optimism in two-plus years of restructuring that doesn't seem to be working? Lexmark's sticking to its plan and going after the business market for its new inkjet products. At this point consumers are too fickle and price conscious. Bernstein Research analyst A.M. Sacconaghi has an "outperform" rating on the stock and a $25 price target. Most importantly, at current prices, its inkjet business is being valued at close to zero. Any success in the business market and its stock price will take flight.

Mid Cap
Safeway (NYSE:SWY) has done some compelling things with its private label business including its O Organics and Eating Right product lines. In addition, Safeway's Blackhawk Network revolutionized the gift card market. Certainly, there's a lot to like about the California-based grocer. Unfortunately, this company operates in one of the toughest, margin-thin industries out there. Analysts seem in agreement that Safeway's current price is too low, but recent comments, including those by Safeway management lowering full-year guidance, makes one wonder when the price appreciation will take place.

Bank of Montreal analyst Karen Short recently gave it an "Outperform" rating along with a $23 price target, suggesting that further lowering of earnings guidance was unlikely. In addition, Jefferies and Co. analyst Scott Mushkin believes Safeway's stock is trading below historical averages and has been for more than a year. As a long-term investor, I interpret the analyst comments to mean they both believe Safeway is still relevant in the grocery business and that's the important thing in the end.

Large Cap
Investopedia's Greg Sushinsky wrote a great piece about Deere & Co. (NYSE:DE) on August 26, hitting the nail on the head by suggesting Deere would survive this recession - it might take a couple of years, not quarters, to recover - despite sales and profits dropping by 25% and 27% in the third quarter. With its stock price way off its high of early 2008, now is an excellent entry point for the long-term investor. Especially, when you consider the growth it should experience from its significant investment in the Russian market. This is one stock to stick in a drawer and forget about. (To read Greg Sushinsky's article, see Deere Reflects Agricultural Slump.)

Bottom Line
If you're looking at the long-term, these stocks could all be beneficial to your portfolio. Check back for the next article, where I will give four more picks to soon create a fully diversified portfolio.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Tickers in this Article: DAVE, LXK, SWY, DE, DIS

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