Of all the insight I've heard over these few crazy months, the most telling came from an investor who appeared on CNBC last fall and, being entirely serious, advised, "There're only two positions to be in right now: cash, and fetal."
I get it. Even with the recent rally, the economy remains mired in failure. Many companies that overleveraged their balance sheets are permanently impaired and will never fully rebound. AIG
Even so, history tells us time and time again that the good gets out with the bad in times like these. Using the wisdom of our 140,000-member-strong CAPS community, I've hunted down a few dirt cheap, high-quality companies. Have a look:
|
Company |
Recent Share Price |
Forward P/E Ratio |
5-Year Expected Growth Rate |
Dividend Yield |
CAPS Rating (out of 5) |
|---|---|---|---|---|---|
|
K-Swiss |
$9.04 |
N/A |
19% |
N/A |
*** |
|
Johnson & Johnson |
$61.16 |
12.45 |
7.68% |
3.2% |
***** |
|
Clorox |
$58.23 |
12.65 |
9.67% |
3.4% |
**** |
Data from Yahoo! Finance and Motley Fool CAPS, as of Oct. 19.
Let's break down the bullish argument for each one.
A closer look at K-Swiss
In the footwear world, K-Swiss might be the antithesis of Nike
But what K-Swiss does have going for it is a boatload of cash, and essentially no debt. This $9 stock carries $4.60 cash per share. Back out those greenbacks, and what we'll call the "stub company" has a market cap of about $130 million -- not bad for an organization that pulled down $77 million in net income as recently as 2006.
Granted, there's no sign K-Swiss is on a path to return to those levels any time soon. But if you believe in management's ability to turn this ship around -- something it's done successfully in the past -- K-Swiss could be a compelling value play for patient investors.
A closer look at Johnson & Johnson
Investors squealed and squirmed last week when Johnson & Johnson missed revenue estimates by a rounding error. We'll be frank: That's the kind of overreaction to nothingness that bargain-hunting investors should be scrambling to find.
If your investment horizon is confined to a quarter or two, sure, Johnson & Johnson might look ugly. But if you look longer-term, you'll see a world-class health care conglomerate with one of the most successful anti-bureaucratic business models in the world, trading at a historically appealing 13 times earnings. As CAPS member bbluemz writes:
One of the best stocks and companies to own in the world. Diverse and [quality] products in the health care sector. Conservative and great [management] with a friendly shareholder attitude. An average compound return of 10 percent for over 120 years. It is like buying a saving bond! Easy to sleep at night with [Johnson & Johnson]. Will be over $100 in four to five years.
A closer look at Clorox
So you think the U.S. consumer is dead, do you? Hey, I can't disagree. But investors' appetite for high-quality consumer-staples companies is no less flatlined. Clorox is one of them. Amid fears -- generally true -- that private-label brands from Costco
Great dividend stock with both earnings and dividends growing at 10% plus, with stability. If you are trying not to mess up, this is a good stock for you. If you are trying to beat the market, this is a good stock for you. When stock fits into both of those categories, then it is hard to resist.
Shares currently trade at about 12.6 times forward earnings estimates, compared to an average multiple of more than 22 times earnings going back to 1993. Bargain hunters, rejoice.
You take it from here
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