3 Reasons to Buy American Capital Today

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Historically, tumultuous times offer some of the best opportunities to buy stocks, and the market's recent mess surely qualifies. The financial sector has become a minefield, but many investors think American Capital (Nasdaq: ACAS) is a diamond in this nasty rough.

In our Motley Fool CAPS community, nearly 94% of the 2,024 investors rating the company are bullish, so there's no shortage of reasons American Capital will thrive, three of which I've highlighted below.

But here at The Motley Fool, we're all for looking at both the good and bad sides of an investment. Once you're done with this article, you can read the case against American Capital, weigh in with your own comments below, or rate the company yourself in CAPS.

1.  Room to work
Although American Capital, like competitor Allied Capital (NYSE: ALD), has been struggling with losses, its large portfolio of investments has helped it book gains this year through strategic exits. It recently made a $35 million gain from a sale to Corning (NYSE: GLW), and portfolio exits have helped it pay off about $300 million in debt since the beginning of the fourth quarter of 2008. Though the future is uncertain, many observers contend that American Capital has the resources to manage the tough environment.

2. Free cash flow
The economic downturn has had a wide-reaching effect on businesses, as well as asset-management firms such as American Capital, Fortress Investment Group (NYSE: FIG), and Blackstone Group (NYSE: BX). Despite its struggles, American Capital has a solid history of generating strong free cash flow in all markets. It's grown its leveraged free cash flow at a healthy rate in recent years, and has kept it coming in over the past 12 months.

3. Discounted shares
Picking up cheap shares of a financial company such as CIT Group (NYSE: CIT), which is flirting with bankruptcy, may be a high-stakes gamble. But not all CAPS members lump financial companies in the high-risk category and expect companies such as American Capital and commercial lender CapitalSource (NYSE: CSE) to ultimately survive and prosper. With American Capital's shares selling below book value, some investors believe it's worth a closer look.

To see details of what CAPS members are saying now about American Capital, just head on over to Motley Fool CAPS and have a look -- or add your own thoughts directly to this story in the comments box below.