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4 Gotta-Have Stocks That Are Finally Cheap Enough to Buy

The problem with quality is that you usually have to pay up for it. Often, the stocks of gotta-have businesses are selling at gotta-pass prices.  

But fortunately for bargain-hunting investors like you and me, some of today's most proven, high-quality stocks are trading for prices that range from reasonable to back-the-truck-up cheap.

Without further ado, here are four high-quality, gotta-have stocks on sale.

The greatest brand in sports
If you're guessing Nike (NYSE: NKE  ) , Under Armour (NYSE: UA  ) , or a professional athlete, nice try. But I'm thinking of ESPN.

According to a recent book by James Andrew Miller and Tom Shales, ESPN is "worth more than the entire National Football League, worth more than the NBA, MLB, and the NHL put together."

ESPN's dual income stream from cable and advertising makes it a cash cow for its parent, Disney (NYSE: DIS  ) . It's managed to keep a start-up mentality even as it's grown into the true Worldwide Leader in Sports. We see this as it expands internationally and makes aggressive moves with video on the Internet (see ESPN3).

ESPN has quietly built quite a moat for Disney and has grown to make up an outsized portion of its parent company's profitability. The Media Networks segment, which includes ESPN, makes up two-thirds of Disney's profits.

Disney is down 20% off its 52-week high and is trading at a solid five-year price multiple of 15.6. This is a reasonable price for a company chock-full of iconic brands, but believe it or not, I'm more bullish on the other three at today's prices.

Two deceptive winners
I frequently hear frustrated investors complain, "But look at the price charts of Wal-Mart (NYSE: WMT  ) and Microsoft (Nasdaq: MSFT  ) . They haven't done anything for a decade!" In fact, I hear it about many of the large blue chips in the Dow Jones (INDEX: ^DJI).

And they're right. Sort of. But they're forgetting two things.

  1. Earnings have exploded. Wal-Mart and Microsoft both earn almost three times as much in net income as they did in 2001. If you look at earnings per share, which factors in Microsoft's massive share buybacks, we're talking four times higher!
  2. Those flat returns don't include dividends. Wal-Mart paid out $27 billion in dividends over the last decade (over a 10th of its current market cap). Microsoft's total is $64 billion (over a quarter of its current market cap).

So in the last 10 years, Wal-Mart and Microsoft have massively improved their profitability while paying back shareholders goodly portions of their capital. For this, they trade for 11.5 and 8.7 times next year's earnings. Add in Wal-Mart's potential international growth and Microsoft's underrated staying power and both are serious blue-chip bargains!

The next stock may be just as discounted.

The greatest investor at a discount
The greatest investor in the world is bullish on the company he knows the best.

Translation: Warren Buffett announced that his holding company Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) is breaking from tradition and has authorized share buybacks.

Buffett is being disciplined as always, not willing to pay more than 1.1 times Berkshire's book value. The current value is flirting with that price at 1.18 times book value. Volatility could bring it under 1.1 quickly.

Not impressed with Buffett loving his own handiwork? Chew on this. Bruce Berkowitz is among the best mutual fund managers out there. Perhaps the best. Morningstar named him "Domestic-Stock Fund Manager of the Decade" for the 2000s. Yet his fund holds almost 10% of its assets in Berkshire stock -- essentially outsourcing a sizable chunk of his investing decisions to Buffett.

That's a powerful combination of endorsements.

And I can add one more endorsement to the list. The Motley Fool's very own Million Dollar Portfolio owns shares of Berkshire Hathaway (as well as those of Microsoft and Wal-Mart). If the kind of investing I've been writing about appeals to you, I invite you to grab a free report detailing five stocks hand-picked by the Million Dollar Portfolio team. Just click here to access your copy now. We hope you enjoy the free report!

Anand Chokkavelu owns shares of Microsoft, Berkshire Hathaway, and Disney, but he holds no other position in any company mentioned. The Motley Fool owns shares of Microsoft, Wal-Mart, Berkshire Hathaway, and Under Armour. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Microsoft, Under Armour, Disney, Wal-Mart, and Nike. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart; creating a bull call spread position in Microsoft; and creating a diagonal call position in Nike. 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 (28) | Recommend This Article (124)

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 October 24, 2011, at 5:37 PM, Lindy62 wrote:

    Microsoft's stock price has done nothing for a decade as you point out. The yield is not that great either. They are steadily losing market share and recently pulled the zune - a failed product. Apple is eating their lunch and that's before the iPad seriously eats into the PC market of Microsoft, Dell, etc. Why would you buy a stock of a company on the decline?

  • Report this Comment On October 24, 2011, at 5:55 PM, rgperrin wrote:

    It would be nice to see a reasoned answer to Lindy62's question (which precedes the present comment). Anyone?

  • Report this Comment On October 24, 2011, at 6:21 PM, crca99 wrote:

    I work in government where jobs include serious typing, spreadsheets, presentations all on PCs. MS Office and IE are not going anywhere for at least a decade (IMHO).

  • Report this Comment On October 24, 2011, at 6:32 PM, moooooser wrote:

    I would have to disagree with crca99. A year ago, over 80% of fortune 500 companies were using the iPhone, and >50% were already using or testing out the iPad. I mention this because the halo effect is kicking in for AAPL (all starting with the iPod), and the Macbook Pro's and desktops are soon to follow. At that point, it's game over for IE (which no longer runs on a Mac.) MS Office may take a little longer, but it's too lucrative of a market for AAPL to not step up their game and address the market. Now I'm certainly not saying you won't see PC's, MS Office, and IE in 10 years, just that there will be a substantial downward trend at that point in time.

  • Report this Comment On October 24, 2011, at 6:35 PM, TMFBreakerRob wrote:

    As noted in the italics after the article, the Fool encourages a variety of opinions and there is no "official line".

    With that in mind, I would rather be banging my head in the wall before I bought Microsoft stock. Yeah, it spins off cash, but it isn't at all hard to find better companies for dividends or for adding value.

    As you can see from my profile, I own Apple. They're not a market share leader in most categories, but they're the ones pulling in most of the cash from those categories, while the also rans fight for the scraps. (Dell, for example).

    While I would not expect this consumer electronics and iEcosystem juggernaut to continue its current breakneck growth indefinitely, the next few years look like massive success to me as it expands the reach of its existing products....and adds to its pile of cash.

    50%+ earnings growth in the most recent quarter, something like $75/share in cash, an iEcosystem that continues to draw in customers and a PE under 15. Simply of a kind...and can be viewed as both a growth and a value stock, with a fortress balance sheet.

    Oh yeah....adored by millions of customers who flock their stores around the world. The only thing not to like: "someday" the growth will level off.

    Note: Its not "someday" and it won't be for years....


    AAPL ~8% of portfolio

  • Report this Comment On October 24, 2011, at 6:50 PM, TheDumbMoney wrote:

    Rob, too story-focused. There is no reason not to own both Apple and Microsoft. And Google. People get so focused on stories and on competition and who will "win." Reminds me of being nine, living in the country, and arguing about which was better, Chevy or Ford (I was a Ford guy). Coke or Pepsi. Boeing or Airbus. BMW or Mercedes. Who cares? All are dominant. From a numerical perspective, Microsoft, Apple, and Google are all some of the cheapest stocks out there relative to reasonably expected growth. They are probably all so cheap because everybody is so carnsarnedly focused on who will "win," and terrified of one being "destroyed," and oh-so-sophisticated in their wisdom that tech stocks aren't forever, that they don't see that all have moats in their own ways, and all are benefiting from long-term secular trends. If it comes down to a bet, I would say Apple is likely the most undervalued of the three, but I simultaneously think MSFT is the safest and has the strongest moat. Time will tell. I'm long all three and I watch their fighting, and my increasing earnings, of/on all three with glee.

  • Report this Comment On October 24, 2011, at 7:47 PM, Terrang wrote:

    As always, entry point is a consideration. A few years ago, maybe around 2007 or a year or so later I was considering MSFT and DIS, which were both trading at around $25 a share at the time. I picked Disney intuitively after weighing both carefully..

    As of today, MSFT is at $27 plus around $2.40 in dividends for a total return of around $29.40 a share.

    And Disney is at $35 plus around $2.15 in dividends since 2006 for a total return of $37 a share.

    Overall, for the last five years DIS has been a decidedly better company to hold than MSFT.

    I post this because while my dates are hazy I clearly recall both stocks were almost identical in price when I bought around 25 and since then I am glad I chose DIS.

  • Report this Comment On October 25, 2011, at 5:20 AM, spicetoo wrote:

    Regarding the future for Microsoft office. Why buy that package when you buy a new computer when you get the same features for free with a googl account. At least i will not.

  • Report this Comment On October 25, 2011, at 10:58 AM, jimmy4040 wrote:

    "So in the last 10 years, Wal-Mart and Microsoft have massively improved their profitability while paying back shareholders goodly portions of their capital. For this, they trade for 11.5 and 8.7 times next year's earnings. Add in Wal-Mart's potential international growth and Microsoft's underrated staying power and both are serious blue-chip bargains!"

    The number one mistake of value investors. Because the company itself makes money, does not necessarily mean that YOU will make money owning it.

  • Report this Comment On October 25, 2011, at 11:31 AM, DangerousDave8 wrote:

    So I just looked at DIS's chart and noticed it mirrors the market almost identically. I guess that' s no surprise...

  • Report this Comment On October 25, 2011, at 12:56 PM, hbofbyu wrote:

    The Fool's Million Dollar Portfolio owns it?

    That's hardly a ringing endorsement.

    Microsoft is entrenched. The "moat" they have is all they have left to sustain them. They don't build "the best" anything.

  • Report this Comment On October 25, 2011, at 5:24 PM, oldman144 wrote:

    Microsoft products are annoying at best- I don't expect much from the company that gave us push start to stop, Vista etc..

    Walmart-- besides a healthy dividend never really goes up but does not drop in horrible times either. Hold it and buy on the dips. Consider it a savings account that pays decent interest.

  • Report this Comment On October 25, 2011, at 8:11 PM, bornboring wrote:

    On AAPL vs MSFT, will somebody please update this info for me. When Steve Jobs returned to run Apple, he met Bill Gates and got cash infusion, in return MSFT owned 20% of Apple, and adapt Office suite for Apple. I wonder if MSFT still owns those shares. You see, the best business strategy is to own your competition.

    MSFT is run like a mature business, they add features to Windows like media center etc to cater for people adding new pc, storage systems and terminals (phones) in and outside their homes. These are gradual extensions, not dramatic like what Apple has been doing. MSFT doesn´t need that if they still own Apple. The aim is to be complementary.

  • Report this Comment On October 28, 2011, at 12:38 PM, everady wrote:

    What is the ticker for ESPN?


  • Report this Comment On October 28, 2011, at 1:16 PM, TheDumbMoney wrote:

    bornboring, just google it (or bing it), it is very easy to discovery that MSFT has not owned any of Apple for a long, long time, that stake was gotten rid of long ago.

  • Report this Comment On October 28, 2011, at 2:15 PM, rlhoman wrote:

    Dumberthanafool is exactly right. When evaluating a stock, what the competition does is important, but what the stock itself does is even more important. Microsoft will probably never be dominate again in computers, but I think it will be a long time before it ceases to make money in them. By then they have time to establish a position in entertainment, servers, phones, and whatever the next hot product is.

    I think Microsoft is in the position IBM was in back in the 90s when everyone had IBM bound for bankruptcy when "the mainframe was dead". Those who invested in IBM at that point are up about 1500% since then. It's hard to kill a corporation with a ton of money and a modicum of intelligence.

  • Report this Comment On October 28, 2011, at 2:55 PM, SLCMortgageGuy wrote:

    I think it's funny that every time someone mentions owning MSFT, someone else has to scream about why it's better to own AAPL. For the record, I own both. Given that only 1 in about 6 people worldwide have a computer, there's still plenty of room for both to grow.

    The fact is, they're at different stages in their evolution. AAPL is still regarded as a "growth" stock, despite it's size, while MSFT is a mature "income" stock that I have seen come up in many newsletters recently as a great dividend play. A well diversified portfolio needs both types of stocks, and I will continue to add to my positions on both during pullbacks.

    MSFT has managed to grow their dividend at an amazing rate over the last 8 years, and given their hordes of cash right now, and free cash flow, they should be able to continue increasing it for the foreseeable future. I only wish that AAPL would use some of their massive cash horde to begin offering a dividend to us long time shareholders.

    Remember, just because we all love our Mac, iPad, and IPod's (I have them all) doesn't mean we can't make money on MSFT too.

  • Report this Comment On October 28, 2011, at 5:14 PM, katerinasarta wrote:

    I have often been intensely annoyed by Microsoft products. I dislike IE and I hated Vista and Outlook. I liked Express but they canned it and replaced it with Windows Live, which I hate.

    But when I looked at the company from an investor's point of view, what I saw was a money-making powerhouse. So I own the stock.

    I wanted Apple stock too, but the stock price is so high that it is not practical for a small investor like me to buy 100-200 shares.

  • Report this Comment On October 28, 2011, at 5:19 PM, frannysez wrote:

    The ticker for ESPN is DIS. Disney owns it.

  • Report this Comment On October 28, 2011, at 5:29 PM, TMFBomb wrote:

    @dumberthanafool and SLCMortgageGuy,

    Agreeing...Microsoft vs. Apple isn't necessarily an either/or decision.

    I own both myself.


  • Report this Comment On October 28, 2011, at 5:35 PM, marginjim wrote:

    Katerinasarta noted that, while she (?) likes Apple stock, she doesn't buy it because, "it is not practical for a small investor like me to buy 100-200 shares." I suggest that, if you pay a premium for not buying in blocks of 100 shares, you need to change your broker. There are a number of stocks, Amazon, Apple and Google are three, where 100 shares would take up too much space in many investors' portfolios; but, with typical brokerage commissions, it doesn't hurt at all to just buy a few thousand dollars worth.

  • Report this Comment On October 29, 2011, at 11:49 AM, TCNFool wrote:

    All good discussion above. MSFT and AAPL are clearly at two different stages of their lifecycles and are not really great comparisons. We all like safety and the "moat," but we also want growth to keep up with inflation - and we're overdue for some of that. MSFT needs to make the same kind of turn that IBM did as it reached maturity. It is not clear what/when that is going to be so I am a bit reluctant to jump in unless the price comes down and the dividend yield looks even better. Since the vast majority of us are reading this on IE explorer because we got the link in our Outlook mailbox you can rest assured that MSFT isn't going away. AAPL on the other hand is exciting and has growth prospects but the price already reflects that. So unless you are building the core part of your portfolio for the very long term (in which case I may select both), I don't see either of these stocks as current opportunities.

  • Report this Comment On October 29, 2011, at 4:34 PM, modestan wrote:

    Okay, if you had $10,000.00 to invest as a brand new investor which 5 stocks would you buy on Monday?

  • Report this Comment On October 29, 2011, at 5:40 PM, Educationist wrote:

    The five stocks are: Exxon Mobil, Berkenshire Hathway B share, Merck, Nestle, Proctor and Gamble.

    In 2000 when I was preparing to retire as a full professor from an ivey league university, I bought 400 shares of Exxon which split as a result of joining hands with Mobil. 800. I left it and did not touch. The price at that time was $37. Merck is one of the strongest pharamaceutical firm with as many as 6 Noble Laureates working in their R&D in Germany and many in the US, India, UK. A solid company with excellent life saving drugs and many more in the pipe lines. German firms do not employ incompetent people. They have top notch management with strong character. I used to visit the firms R&D when I worked at Max Planck Research Institute. Berkenshire Hathway as you know is run by a man who is well-known for his simplicity and clean living. His manager amongst others Ajit Jain is a man of character. WarrenBuffet bought shares worth $5 Billion in Goldman Sachs and Bank of America so he can chase away corrupt people and cleansify the augean stable. So, when buying shares read and know not just P/E ratios, but the calibre of men who run the company, cash flow, products, and many more . LIsten to the brokers with a pinch of salt if not cellar full of salt.

  • Report this Comment On October 30, 2011, at 1:18 AM, TempoAllegro wrote:


    If you have 10,000 to invest on Monday, and you are a new investor, I would recommend this:

    Do nothing yet. Invest in your education first. Read!

    Take it from someone who trades too frequently, and has been learning the hard way - reading ideas in articles and then acting too quickly on those ideas or getting tips from friends and family can be very detrimental to your wealth. Try books - some of which are suggested at, or learn from one or two of their newsletters before committing. But WAIT until you see a real opportunity that is irrefutable - and then buy, preferably when others think it is a bad idea. Too many people take action needlessly - or worse, get lucky and think themselves smart.

    From the article - I think DIS is a good candidate to watch not only because of ESPN, but because it owns both Pixar and Marvel.

    Educationist has some good ideas. I applaud his focus on character and research and development. I would say companies that have products that people need, not just want, would be best now, and also those that innovate are the way to go. But without educating yourself - you WILL be toast, especially in this market. I love the Fool for encouraging us to keep learning and do our own research.

  • Report this Comment On October 30, 2011, at 4:45 PM, TMFBomb wrote:


    Wise words.

    Fool on,


  • Report this Comment On October 30, 2011, at 6:09 PM, ALLWIN wrote:

    I would like to endorse 110%, and more, the words of wisdom and prudent advice given by @mungermaniac. Of interest, like mungermaniac, I have also being learning the ''hard way"! In that respect they speak to me as well!

    The value Educationist places and the advice he has given on the calibre of men who run the company (ie management & character), research & development,cash flow, products, ARE ALL ESSENTIAL elements in deciding the stocks to buy.

    Much thanks to Modestan for the question, to Educationist & mungermaniac for their invaluable responses.

    Best wishes to all for success.

  • Report this Comment On November 01, 2011, at 8:14 AM, Libor8erBlake700 wrote:

    SMALL STAKES:- Re KaterinaSarta's inability to buy small quantities. Owing to divorse, I'm skrabbling for pennies just when here are all these bargains in the stokk market. Like a child in a sweet shop, I may only afford bon-bons OR chokolate kreme OR sherbert. How to chooze???

    Here in ENGLAND I uze Motley Fool (on-line) brokeraje: it's £10 plus Stamp Tax (=half a%) to trade an English share & £17.50 for foreign. E.g. £417-worth of Nationalized Koal Board (UKC.London) kost me only £12 extra. OK that's 2¾% - so what when we're investing for 46-odd% returns. (Over 4 years (say) that's 10% Annual Redemption Yield - remember your binomial theorem!)

    BENCH-MARK that with KrN23320-worth (=£2634) of Norsk Hydro-Elektrik (NHY.Oslo), which MF kan't buy me, & I bought to justify my normal broker's foreign minimum, in this kase KrN1267 (=£143) = 5.43% & that exkludes ANNUA£ feez!!!!!!

    Maybe that's why Warren Buffet invented his B-shares (BRKB.NYQ): he remembers what it's like being little savers like us. (PS, one-&-a-half thoze Ster£ing prisez for you $ilver-Dollar people.) Radio Caroline (England).

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