by Sati Malik

Created on: November 29, 2008   Last Updated: May 24, 2010

Taking the pulse of financial companies in this topsy-turvy bear market can be tricky. On the one hand, once bedrock names like Citigroup (NYSE:C), JP Morgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) have posted unprecedented credit-related losses and writedowns. Global losses in financials are approaching $1 trillion since the Credit Crisis began. A further $65 billion in losses are expected from financial firms this quarter.

Yet, on the other hand, interventionist government policies are redefining the calculus of financial solvency. So far, $250 billion of the $700 billion allocated under the Troubled Assets Relief Program (TARP) has been injected to clean up the balance sheets of U.S. firms.

Nevertheless, despite conflicting messages, this time of low stock valuations is an opportunity to pad one's portfolio with a few undervalued stocks. Here are five things to look out for in the current climate:

Strong Cash Position

A recent study by Citigroup's investment bank found that firms with good cash reserves have weathered the Credit Crisis 7% better on returns than their cash-poor peers. Goldman Sachs (NYSE:GS) and Berkshire Hathaway (NYSE:BRK-A) are leaders in this respect and are also prominent market beaters.

Pay special attention to companies with strategic relationships in emerging markets, like Goldman, Morgan Stanley and JP Morgan in China. The large cash reserves in these regions - much of it stored in risk-tolerant Sovereign Wealth Funds - are a key source of liquidity as well as a large deposit base. Also, look kindly on companies that are significantly "deleveraged" - that is, companies that have good cash / debt ratios. The norm is about $1 cash to $10 borrowed.

Access to Credit

After Treasury Secretary Paulson ditched TARP in favor of direct investment last month, the Libor rate - which measures banks' willingness to lend to each other - has climbed. Firms that can get credit in these tight times are good bets. The Fed's recent pre-Thanksgiving announcement that they'll inject another $800 billion to stimulate the credit markets may not stem the cash-hoarding reflex that followed the initial $250 billion payout of last September.

Strong Management

Good leaders often make the right moves: JP Morgan Chase's Jamie Dimon, scooping up Bear Stearns; Berkshire Hathaway's Warren Buffet increasing his bank-related investments by 36%; and Goldman Sachs' Lloyd C. Blankfein opting to forgo bonuses for upper management. Some of the best moves of 2008 were

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