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"Innovation" is in the CEO toolkit of buzzwords to say to Wall Street. Investors love to hear those words; as if it makes them feel their investments become safer each time the word is dropped. However, times like these help us discover which CEO walk the talk. In good times it is often difficult to see if a company is truly innovating. Revenues are going up, but that is true for most of their competition. Sure, we could look at their product portfolio, but if we do not use the products how do we understand if they are truly innovative and resonate with customers? Nope, the good times are for buzz words with litttle accountability for our corporate leaders.

Now, it is very different. It is now that we discover who is committed to long term visions and who is focused on right now politics. During the good times, were companies generating improving margins due to true innovation or aggressive dedication to operational efficiencies? If due to operational efficiencies, they will be hit harder than other companies because their ordinary product line becomes exposed in a down-cycle. Without revenues from innovative products to mitigate the slow down of revenues for their cores, companies dedicated to hitting their numbers panic; all they know is operational efficiency, but an extreme op-eff response in a down cycle can cripple a company for long run growth. There will always be a little fat to trim entering a down-cycle - identify poor performing products to cut and invest in the strong performers - but cutting for the sake of hitting numbers in a market you can not control is a suicide strategy.

Here is where you can identify the true innovators. Do they respond to poor earnings announcements with mass layoffs? Do they dramatically pull back ad spending? Do they completely abstain from M&A? Those innovation buzzwords may be all for show and they may not be walking the innovator walk. As these companies release their numbers for this quarter's earnings, you must ask yourself "was this the result of mass cost cutting or new products? It should be much easier to see in this environment. If it was due to cost cutting, I would argue that their long term growth will be tied to the health of the market - great for a commodity company, poor for everything else. If it was due to products, then this is a long term play because they will outperform the market. It is times like these were we see the true mettle of today's public company CEO. I encourage you to look carefully to distinguish the true innovators from the word droppers in preparation for investing in the next up-cycle.