By Reader Request: Here's What to Buy If You're Opportunistic … but Still Scared

Yesterday, as the Dow continued its 512-point drop, we spent four-and-a-half hours chatting live with concerned Fools. Many requested a few simple ideas for opportunities worth seizing amid this market sell-off. We solicited six compelling candidates from Motley Fool advisors, analysts, and editors -- and our CEO.

Tom Gardner, Motley Fool co-founder and CEO, and Stock Advisor co-advisor:
If you believe that the U.S. is headed back into recession, and you believe that our political officials won't see the light on the critical need to both close tax loopholes and ratchet back spending, then you'll naturally want to take your portfolio into a more defensive stance. But how? I recommend looking for companies with these six traits:

  1. Easy access to capital (their own!)
  2. Substantial future opportunities in foreign markets
  3. A stellar history of operating results
  4. The reputation of being a cost-saver for consumers
  5. World-class leadership
  6. A steady dividend

This is why my recommendation is a core stock holding of mine in our Stock Advisor service: Costco (Nasdaq: COST  ) . 

Jeff Fischer, advisor, Motley Fool Pro and Motley Fool Options:
Waste Management
(NYSE: WM  ) has been thrown into the trash heap over the last month, declining from $38 to $30 on weak trash volume. The country's landfill leader and largest recycler now pays owners a 4.5% dividend. Although competitors are lowering prices to haul away your trash, as a landfill owner, Waste Management still benefits by charging these competitors to use its resources. Earnings estimates for 2012 were just lowered, but the stock trades around a reasonable 12 times consensus estimates. Although recessions lead to lower trash volume, this business should be able to sort through it and come out smelling stronger.

Eric Bleeker, Fool.com technology editor:
I like cheap stocks, but I love "are you kidding me?" cheap stocks. After sliding nearly 18% in the past two weeks, EMC (NYSE: EMC  ) is approaching that territory.

True, the stock still trades at 25 times earnings. However, that metric conceals EMC's 80% stake in virtualization kingpin VMware (NYSE: VMW  ) . Netting out that holding, and removing VMware's contributions to EMC's financials, you'll find that EMC trades for only around seven times trailing free cash flow. That's a bargain-basement price for a company that's a proven leader in the storage industry -- one of the tech sector's hottest growth areas. Even if you're less optimistic on cloud computing and VMware's position in it, giving EMC credit for half of VMware's current value leaves EMC trading at 13 times cash flow.

If the market rout continues, EMC's a great way to buy an industry-leading company with very high upside potential. This is one deal I won't be passing up.

David Williamson, Fool.com health-care editor:
Suffering from feelings of anxiety, insomnia, and even depression when watching the markets?  Bristol-Myers Squibb (NYSE: BMY  ) has the medicine you need. Health care is often considered a safe sector in tough times. It's unsurprisingly outperforming so far in 2011, and among big pharma stocks, Bristol-Myers is the clear standout.

The market doesn't appreciate the potential of the company's pipeline. Although the "patent cliff" is set to do a number on earnings across the industry, recent Bristol-Myers successes including Yervoy and atrial fibrillation frontrunner Eliquis will allow the company to absorb the loss of top-selling drug Plavix better than Eli Lilly will weather losing its top drug, Zyprexa. So while earnings may tread water in the short term as Bristol-Myers transitions to new products, this stock tops its sector for long-term potential. And while you're waiting for that growth to fully kick in, you'll enjoy a substantial dividend yield of 4.7%. 

Buck Hartzell, director of analyst learning:
Over the past 12 months, White Mountains Insurance (NYSE: WTM  ) has handily outperformed the S&P 500. Yet even at just more than $400 per share, White Mountains is far from its summit. In May 2011, it agreed to sell Esurance to Allstate for a cool $1 billion. This transaction should add $80 to reported book value per share.

With that adjustment, White Mountain's book value will reach a lofty $530 per share. Don't let the high altitude of the absolute stock price scare you off -- this thing is trading hands at only three-quarters of its own book value. The chairlift is leaving the station, so don't miss it this well-run, cash-flush business.

Brian Richards, Fool.com managing editor:
I'm going to cheat a little bit and give an exchange-traded fund rather than a stock: Vanguard Dividend Achievers (NYSE: VIG  ) . This low-cost ETF, with an expense ratio of just 0.18%, is suitable for conservative investors. It comprises 127 companies that have increased their regular annual dividend payments for at least 10 consecutive years. The ETF offers exposure to high-quality large-cap names, and allows nervous investors to sleep better. Roughly 61% of the holdings represent traditionally defensive industries: consumer staples, industrials, and energy.

The fund's top 10 holdings, which alone make up 40% of assets, are a who's-who of dividend-paying blue chips: stocks like McDonald's, IBM, and Coca-Cola. At just more than 2%, the ETF's yield isn't overwhelming, but remember: Those payouts should grow over time.

For more ideas, click here to try Motley Fool Stock Advisor free for 30 days.

Buck Hartzell owns shares of White Mountains Insurance. Brian Richards owns shares of the Vanguard Dividend Appreciation ETF.

The Motley Fool owns shares of EMC, Costco, IBM, White Mountains Insurance, and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Coca-Cola, VMware, Costco, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (86)

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 August 05, 2011, at 2:14 PM, AgAuMoney wrote:

    Supposedly VIG's top holding is WFC.

    http://finance.yahoo.com/q/hl?s=VIG+Holdings

    Yet WFC cut their dividend from $0.34/qtr to $0.05/qtr in 2009 and just this year increased it to $0.12/qtr. Some 10 year increase, eh?

    http://dividata.com/stock/wfc/dividend

    How can WFC be classed as a dividend achiever suitable for VIG?

    This is why I hold individual stocks not funds.

  • Report this Comment On August 05, 2011, at 2:43 PM, idahogeo wrote:

    @AgAuMoney,

    It looks like Yahoo!'s data mining team is not doing you any favors. According the Vanguard, there is no WFC in the fund.

    https://personal.vanguard.com/us/funds/snapshot?FundId=0920&...

    For what it's worth, I use this fund to anchor my IRA brokerage and like the holdings--esp. the top 10!

    Best,

    idahogeo

  • Report this Comment On August 05, 2011, at 2:56 PM, amedici wrote:

    No WFC amongst VIG's holdings

  • Report this Comment On August 05, 2011, at 3:35 PM, easyavenue wrote:

    AgAuMoney,

    Yahoo Finance has long been discredited for mistakes in the data they present. That said, considering the sheer size of the data they manage, I don't think they do such an awful job. But I always go elsewhere to check before making any portfolio changes.

    Try Morningstar. Or, Vanguard has a nifty feature wherein you can compare up to five ETFs or Mutuals side-by-side. It's under their Research tab. It shows returns over time and by definition, holdings, and more. And you don't have to join.

    Not using Funds is like tying a hand behind your back. Read anything by Swedloe and you will see why. Also recommend the Gone Fishing Portfolio (a book).

    Fool On, Dude!

  • Report this Comment On August 05, 2011, at 3:45 PM, TMFBrich wrote:

    @AgAuMoney:

    I'm not sure why Yahoo! shows WFC as a top holding.

    In looking at the annual or semiannual reports, there's no ambiguity: WFC was in the fund's holdings in July 2009: http://www.vanguard.com/funds/reports/vdaidxsa.pdf

    But dropped out by July 2010: https://personal.vanguard.com/funds/reports/q6022.pdf

    And was not there in Jan 2011: https://personal.vanguard.com/us/LiteratureRequest?FW_Activi...

    According to Vanguard's own site, Wells Fargo is not in the holdings as of June 30, 2011. So after it cut its dividend, it was removed from the index.

    Best regards,

    Brian Richards

  • Report this Comment On August 05, 2011, at 4:30 PM, dontwin wrote:

    I wish they had rcommended SeaDrill. Now at 30 with an 8 percent dividend. What a buy!

  • Report this Comment On August 05, 2011, at 6:08 PM, Homecooken wrote:

    "By Reader Request: Here's What to Buy If You're Opportunistic … but Still Scared"

    I would like to know "What to buy if I'm Opportunistic...but Not Scared"

    Dan

  • Report this Comment On August 05, 2011, at 7:12 PM, mtracy9 wrote:

    Here's what to buy if you're opportunistic and not scared:

    BWLD

    PNRA

    BBY

    SOLR

  • Report this Comment On August 06, 2011, at 4:48 PM, nivekluap wrote:

    Here's another one if you're not scared:

    Ford (F)... profitable, paying down their debt, dividend right around the corner....I bought some more yesterday for $10.50.

    6 months from now we'll be reading articles about how the market bounced back from "the end of the world".....again (OK, it might take longer than that, but....you get the idea.

    Fool on!

    KD

  • Report this Comment On August 12, 2011, at 9:44 PM, trojan69 wrote:

    Stressed? Go diving no phones etc at 100 ft.

  • Report this Comment On August 13, 2011, at 11:30 AM, SkepticI wrote:

    I bot F at 10.10, If its still less than 11 next week I will buy more. THE ONLY AMERICAN CAR COMPANY left not only deserves my support, investment and business, they respect my dollars and will make me a nice profit. Hmmm, might even get a spiffy pop out of this in 2011.

  • Report this Comment On August 23, 2011, at 5:43 PM, satrapo wrote:

    I agree with the EMC evaluation.

    The company is well positioned in the I/T global market and has the numbers to perform in the short and middle term.

    I only wish I had some cash to put on it!

  • Report this Comment On September 03, 2011, at 9:54 AM, viccadee wrote:

    Sure, F respects your dollars. Especially when about 26 million of them went into the CEO's pocket instead of sharing with share holders by way of dividends. Have a blessed day.

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