The stock market is selling off aggressively today, retesting the lows hit in the last two weeks.  Earnings season is well underway and while guidance is universally cautious, companies that have strong balance sheets are reacting far better than those that don’t.  Apple and Broadcom, for instance, are both up nicely today. 

In spite of guiding results more cautiously, both companies reported record quarterly results.  The big difference in the rise of these stocks versus others that are down may be three fold.  First, both companies have shown tremendous discipline on the expense front, perhaps something they learned of necessity from the tech wreck many years ago.  Second, both companies have no debt, generate tons of free cash flow and have plenty of the stuff on their balance sheets.  For perspective — and this should interest you — 50% of Broadcom’s market value is represented by cash, while the number is 25% for Apple.  (Talk about a rainy day fund!)  Finally, both companies are clear innovators in their field and are likely to emerge from these dark days in far stronger competitive position. 

Today’s lows are likely being tested (and will hopefully hold) on the basis of very weak international markets.  Oil is plunging to new fifty two week lows and is now down more than 50% from its peak.   Argentina’s decision to nationalize many of the country’s pension funds is likely dealing a blow to the prospects for capitalism as well.  The dollar is rallying very strongly as investors who have flocked to the international markets grasp for the “safety” of the United States.  We may not be healthy, but in this environment, we may be the least sickly.  We also went into this mess first and may likely emerge from it earlier as well.  

All things being equal, innovators with strong balance sheets and companies with large domestic sales exposures should likely outperform from here.