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4 Cheap Stocks You Can Buy After the Crash

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Call it that: a market crash. It started May 6 with the Dow's two-minute, 1,000-point moment of incontinence, and never really stopped, leaving us about 10% below where major indices stood a month ago. The Dow is now on track for the worst monthly loss since February 2009, just as stocks were bottoming out. Woe is us.

You can thank Greece and its European neighbors for most of this. Europe is a disaster, and it could spew its venom onto our shores before long. Hence the worry, which I'd say is mostly justified.

But I'd also say plenty of stocks now look buyable after the crash. Some look downright cheap. Here are four:


Decline Since April 26 (previous market high)

Forward P/E Ratio

CAPS Rating
(out of 5)

Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  )




Microsoft (Nasdaq: MSFT  )




Ford (NYSE: F  )




WellPoint (NYSE: WLP  )




Sources: Capital IQ, a division of Standard & Poor's, Yahoo! Finance.

A few things: That these are all large, well-known companies isn't a coincidence or the result of lazy screening. Some of the best values today are in big, established companies. And, as always, screening without any further discussion is useless, so let's talk about these companies.

Berkshire Hathaway
The most reasonable way to value Berkshire Hathaway is the price-to-book ratio. Why? Because a lot of its business model involves price appreciation of assets, rather than streams of net income.

Given Warren Buffett's track record and the quality of Berkshire's subsidiaries, shares typically demand a solid premium over book value. Going back to 1994, shares have traded at 1.87 times book value on average. Yet thanks to the recent sell-off, the current multiple is more like 1.18 times book value, which isn't too far from 2009's low of 0.98 times book value. That's all I need to hear.

Many have noticed that Microsoft now trades for under 11 times next year's earnings (and still only 13 times last year's earnings), which seems unreasonably cheap. I'd say that's spot on, but there's more to the story. Remember that Microsoft hoards a mountain of cash and short-term bonds -- nearly $40 billion, or $4.24 per share to be exact. If you take this into consideration and back out what might be seen as "excess cash," it's reasonable to interpret Microsoft as trading under 10 times earnings, which is absurd for a company that still has a total bear hug on the software market.

It's true that Microsoft is a serial cash hoarder and may never put all of this cash stash to productive use. Bill Gates once admitted that when he started the company he "soon came up with this incredibly conservative approach that I wanted to have enough money in the bank to pay a year's worth of payroll, even if we didn't get any payments coming in. I've been almost true to that the whole time." Even so, the safety this cash provides is worth paying a premium for. If Microsoft ever gets into funding problems, the world is basically over. You should be willing to pay up for that just like you're willing to pay up for bonds.

My guess is Ford still makes people anxious because of its guilt-by-association ties to GM and Chrysler. But Ford's story over the past year is truly remarkable, and the truth is, it's not only alive, it's doing great. Consensus estimates say Ford will earn $1.59 per share next year, which jibes with last quarter's $2.1 billion, $0.50-per-share profit.

Shares have been dinged lately because the company does a lot of business in Europe. But what else happened lately? A study by A.T. Kearney consultancy came out projecting that U.S. auto sales could hit 11.7 million this year, 16.8 million in 2012, 17.8 million by 2013, and 18.6 million in 2014. The last two projections are higher than the 16.9 million vehicles sold in 2005, when the American consumer was still a hungry animal. This industry isn't dead, and a stronger-than-before survivor like Ford will treat patient investors well.

(Also, for an inspiring example of the power and potential of contrarian thinking, check out this January 2009 Ford article by fellow Fool John Rosevear. He nailed it.)

WellPoint has been a value-investor favorite for most of the past year. Why? Because it's unquestionably cheap. Really -- undoubtedly, unequivocally, almost embarrassingly cheap. On a trailing-12-month basis, shares trade at under 5 times earnings, and forward-looking estimates only bring that up to about 7.6 times earnings.

Of course, the underlying fear is that health-care reform will destroy insurers' business model. This was accentuated after the White House recently jabbed specifically at WellPoint's practices. But the salient point when a stock is this cheap is that even if new regulations mean WellPoint will never grow earnings from now until the end of time, it's still probably a good buy. And on the contrary, one of WellPoint's largest rivals, UnitedHealth Group (NYSE: UNH  ) significantly upped its dividend program, showing confidence and strength in what's perceived as a dangerous industry.

Show me what you got
Those are four companies on my mind. Any on yours? Share 'em in the comments section below.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Berkshire Hathaway, Microsoft, UnitedHealth Group, and WellPoint are Motley Fool Inside Value choices. Berkshire Hathaway, Ford Motor, and UnitedHealth Group are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Berkshire Hathaway and UnitedHealth Group and has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (50)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 27, 2010, at 1:13 PM, park94 wrote:

    The European Credit problem is solved and China said it won't change it's eurozone investments for now. Wall Street is booming again. Looks like everything is ok and The Fed said the economy hadn't grown the first statement 3.2% they said it was basically BS, though I don't know why people would believe them now.when they say 3% either then. Looks like they make BS up as events come by. Anyways I reccomend heavily investing in everything. Silly people undervaluing everything...

  • Report this Comment On May 27, 2010, at 1:25 PM, geojak0 wrote:

    I love the ending of this article. A lot of great articles are written by folk at the fool only to be ruined by the sales pitch at the end.


  • Report this Comment On May 27, 2010, at 2:57 PM, weslindsey wrote:

    You think these companies are cheap now? Wait till the next crash comes - probably in the next two weeks, and they you'll be able to absolutely steal them.

    Of course... I could be wrong. It's happened before.


  • Report this Comment On May 28, 2010, at 3:15 AM, BodhiSun wrote:

    anyone here heard of i'm just getting started there, and finding it's a good reality check for the info i get here, including the above recommendations... wld love to hear from you if you know more about this company... many thanks! ~b~

  • Report this Comment On May 28, 2010, at 10:05 AM, park94 wrote:

    I hope this ain't a double bottom market. I hope the Euro got fixed cause there is nothing the US can do about Europe. A lot of people got in yesterday at these high levels.

  • Report this Comment On May 28, 2010, at 10:12 AM, plange01 wrote:

    boeing and rimm are steals at current levels!

  • Report this Comment On May 28, 2010, at 2:42 PM, plange01 wrote:

    when this crash is over all stocks will be cheap!!

  • Report this Comment On May 28, 2010, at 4:52 PM, EliasC wrote:

    This four seems quiet cheap, but today I found a really good bargain, normally I don't invest much in OTC's. But after analyzing this one seems like it is a solid stock. China Crescent Enterprises (CCTR) has a P/E of 0.11, but let me explane : it has just showed it's results which were quiet impressive (revenue +100%, net income +480%) and it will upgrade its previsions for 2010 (You have to remind that the company is worth only 1.5 millions, so only double it's quartelry earnings!!! as if apple would trade 30B not 230B!!) and the company has big name clients such as Microsoft, Oracle, Cisco, IBM, HP and Dell so it's partners are not the less.

    I may be wrong but it seems to me as an incredible opportunity (maybe a ten bagger who knows) worth looking at!

    Good investing!!

  • Report this Comment On June 04, 2010, at 6:07 PM, BobbieM91 wrote:

    At&t has sold out the i-phone users so apple is going to need to look to unlocking it for other companies if they want to keep ahead of the market with the androids becoming popular for those of us who didn't want to change cell companies. Microsoft is still in the play book with continuous upgrades and being one of the big players and it's cash flow makes it reasonably safe. Ford had 2 years of cash stored just for this type of market and will continue to be there when GMC and Chrysler are gone. The Euro is still not out of trouble, no matter what others may think as there are a lot of countries that are in financial trouble in Europe. Buffet's stocks are not something that I even consider as they don't pay dividends and I like dividends.

    My company for the moment is Hawkins which has been steady and has gone up from $12 when I bought it in 2003 to $49 today. I stay away from most techs due to the major ups and downs in them. Wellpoint is a good play right now but health care companies are going to soon be seeing a downward spiral due to the new health care plans mandated by our government. We are already seeing some of the fallout now in the medical field.

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