Value investing legend Benjamin Graham always stressed margin of safety above all else in making any investment decision. Regardless of the potential upside, like Graham, all investors should always be concerned with the downside. One way to for investors to protect themselves is seek strong, quality businesses with fortress-like balance sheets along with industry dominance.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

No Boundaries
Brazilian oil giant Petrobras (NYSE:PBR) is worth a closer look. The company offers investors a long-term play on oil and Latin America. In addition, one of the largest new potential discoveries of oil, the Tupi field, significantly involves Petrobras. As Latin America grows and develops, Petrobras benefits.

At a market cap of $120.96 billion, Petrobras is not going anywhere; at a P/E of 7.16, shares are not expensive at $19. Holding Petrobras for a number of years will in all likelihood deliver returns that meet or exceed the broad market. At the same time, investors can be comforted that Petrobras has the financial strength to weather the storm.

Developing Oil Plays
A "sister" company to Petrobras is PetroChina (NYSE:PTR), another wonderful business operating in the fastest growing economy in the world. There are always risks to investing in foreign countries like China and Brazil, but you mitigate those risks with dominant businesses like Petrobras and PetroChina. Both companies are held by many investment funds and highly regarded money managers. PetroChina commands more of a premium at a P/E of 11. At the height of the oil boom, both businesses were trading at twice today's multiples. Also, both companies pale in comparison with Exxon Mobil's (NYSE:XOM) market cap of $373 billion, but operate in countries that offer them the opportunity to become one of the largest oil companies in the world.

SEE: The Value Investor's Handbook

The Economics of Concrete
Vulcan Materials
(NYSE:VMC) is a leading supplier of infrastructure materials, namely concrete, asphalt and cement. As construction activity has fallen of a cliff, so has Vulcan's business. However, a basic understanding of the aggregates business shows why Vulcan will reward patience.

The weight-to-value ratio of Vulcan's products is high; in other words, transportation costs are relatively high. Customers always buy their products from the nearest supplier within a 25 to 30 mile radius. In other words, a Vulcan competitor 50 miles away that sells cheaper materials won't get the business because the extra transportation costs offset the savings.

Thus, companies with a wide network of distributors have a monopoly-like moat. In addition to Vulcan, Texas Industries (NYSE:TXI) is another supplier of aggregates with a strong moat. As well, the costs and time to establish a mine today is very prohibitive; concrete mines are very loud and dusty and no neighborhood or municipality really wants one. So companies that own existing mines are ahead of the game.

Bottom Line
One key in selecting investments is to really think about the business over a period of many years and ask yourself if you would like to be in that business. This metric is one that many value investors use, and as a result, leads to successful results.

SEE: Battered Stocks That Bounce Back

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!