Buy Stocks for 84 Cents on the Dollar

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If you think that General Electric (NYSE: GE) is cheap -- closing at $23.10 yesterday before today's pop -- how does $19.59 sound?

The punch line isn't "Well, wait another week." There is actually a way to buy a basket of quality stocks like GE, Oracle (Nasdaq: ORCL), and PepsiCo (NYSE: PEP) at a 15.2% discount today. But there is a catch.

The way? Shares of Adams Express (NYSE: ADX), one of the many closed-end funds (CEFs) trading at a steep discount to their actual holdings, is trading at a 15.2% discount to its net asset value (NAV).

The catch? There are no assurances that the NAV discount will narrow. In fact, the disparity may widen.

Closed-end funds don't get a lot of loving from the financial press. In the past, it was the popularity of the more conventional open-end mutual funds that kept attention at bay. Now it is the widespread use of the somewhat similar exchange-traded funds (ETFs) keeping CEFs in the shadows.

It's a pity, because as bad as the market has beaten down some of your favorite stocks, CEFs like Adams Express offer a way to get in for even less.

84 reasons to give CEFs a chance
Adams Express has been around since 1929, so it's not some newfangled market contraption. The fund sports an expense ratio of 0.46%, much lower than the typical stock fund. Its commitment to own quality names, coupled with its low expense ratio, has granted the fund the luxury of paying out consistent dividends for more than 70 years.

GE was the third-largest holding, at 3.1% of the fund. If you like PepsiCo as a recession-resistant purveyor of pop and salty snacks, and Oracle as a master consolidator in the enterprise software space, they too are some of the fund's largest holdings.

Analyzing the discount to NAV really puts value into perspective. GE is fetching 11 times earnings in the open market, but the Adams Express discount prices the stock at the value-hunting equivalent of a P/E ratio of under 10.

	9/29/08	This Year EPS estimate	P/E	P/E with 15.2% disc.
GE	$23.10	$2.08	11.1	9.4
Oracle	$18.77	$1.52	12.3	10.5
PepsiCo	$69.66	$3.73	18.7	15.8

 Source: EPS projections data from Capital IQ.

Naturally there are no guarantees that CEF investors will get to cash out at fair value. That would require liquidation of the fund, and that's unlikely from a company that has been at it since 1929.

This doesn't take away from the value of the proposition. The thin universe of CEFs is offering steep discounts to already steep markdowns. I mean, come on now. General Electric was trading in the low $40s a year ago.

Double-dipping into the discount
Perhaps the neatest twist with Adams Express is that its largest holding -- Petroleum & Resources Corp. (NYSE: PEO) -- is yet another fund trading at a double-digit discount to its assets. So while investors can get into the sector-specific fund and buy into top holdings like fuel kings ExxonMobil (NYSE: XOM) at 9.6% of assets and Chevron (NYSE: CVX) at 8% of assets, at a 14.4% discount, buyers through Adams Express can get in for even less.

In other words, if you think getting ExxonMobil at a 14.4% discount to the market is good, imagine slashing another 15.2% from the already marked-down price.

The market's on sale. You recognize that. This may not be the time to begin nibbling your way back in, but when that time comes, you are doing yourself a disservice if you don't explore the forgotten world of CEFs.

You're not one to miss out on a great bargain, are you?

Other ways to get down with the bargains:

• Adams Express was one of my three CEF bargains back in June.
• I looked at six foreign fund bargains last summer.
• Not so sure about your own funds? Check out the Fool's Mutual Fund Center.