Every day, the market offers up bargain opportunities. We don't always know when one of those opportunities will occur or what form it will take, but finding one will supercharge your portfolio.
Master investor Peter Lynch said that an advantage of running Fidelity Magellan was its charter. It was a capital appreciation fund, giving him the flexibility to buy in any investment situation.
And he took advantage of it! Big, small, constant growth, or cyclical. You name it, Lynch bought it.
That is exactly how you and I should approach our portfolios. We should look for the best opportunities: growth stories, turnaround stories -- even misunderstood stories. The key is to understand the story and figure out how good the sale price is.
Great companies grow steadily every year between 10% and 15%. Right? Wrong! Great companies have plenty of miscues along the way. But the truly great ones recover.
The key, then, is to invest in great companies. Want to know what makes one great? Read Built to Last or Good to Great by Jim Collins. Another master, Warren Buffett, offers his thoughts in his annual chairman's letters. Read those, too. Trust me.
But we'd all be rich if the only thing investors had to do was identify great companies. The key, as Benjamin Graham first discovered, is to buy them when they're on sale.
Nike (NYSE: NKE ) was a poster child for trouble in February 2002. Growth was slowing, the brand was searching for direction, and the world was questioning the company's labor practices in the Far East. No one wanted Nike at $25 per share.
But Nike just does it. It battled through PR problems, expanded product lines, and signed Tiger Woods, LeBron James, and a host of great young athletes to replace Michael Jordan. If you saw Nike's underlying greatness in 2002, you've handily beaten the market on the back of 25% annual returns.
The Enron collapse took down many energy giants, including Calpine (NYSE: CPN ) , Dynegy, and AES (NYSE: AES ) . All of them watched their stock prices drop off 90% from all-time highs.
Calpine's problem was in overpaying for generation assets and then not being able to generate any revenues from them. Yeah, worthless.
But AES had revenue contracts for more than 70% of its generating assets. Granted, some of its plants were losing money, but the majority were generating cash flow. Not worthless.
Today, Calpine is still selling assets to get its balance sheet in order. And AES? It's back on track. Fire-sale buyers bought themselves a 120% return!
Eddie Lampert took control of Kmart when conventional wisdom said the retailer was finished. But Lampert saw a set of stores and a distribution system still intact. He picked up the whole operation for next to nothing.
Lampert began allocating capital and used Kmart as leverage to buy Sears. Now he's built the cash-generating monster that is Sears Holdings (Nasdaq: SHLD ) and has generated 174% annual returns along the way.
Within the market, there are plenty of underappreciated, unloved, and misunderstood businesses. Add the right catalyst, and you've got opportunity.
Great value investors from Charles Brandes to Bill Miller to Wally Weitz think Pfizer (NYSE: PFE ) is a bargain. So, too, does Fool value guru Philip Durell. The market's not assigning any value to its growth potential, and the company's cost-reduction efforts and a growing pipeline offer a great opportunity for investors. And with so much attention, this bargain could be for a Limited Time Only.
On sale tomorrow .
But what will be a bargain tomorrow? That's what Philip Durell and his Inside Value team dig up in every issue. It takes patience and a contrarian spirit to invest in those kinds of ideas, so put your rebel hat on and take a risk-free trial for 30-days to find the next big bargain.
Fool contributor David Meier owns shares of Nike and AES but of no other companies mentioned. The Motley Fool has a disclosure policy.