The Best Opportunity This Decade

Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we might be in at present). From the shortest one -- six months in 1980 -- to the two that spanned 1973-1975 and 1981-1982, we've muddled through and come out the other side. In between each, we've experienced, on average, almost five years of expansion.

So while we might be in another recession right now, I'm excited!

Pardon me while I wipe my chin
First, we have a whole bunch of people running around in panic mode crying, "The sky is falling!" They don't want to hold stocks during a recession, so they're willing to sell them -- cheap.

Second, the news media fan the flames of panic with constant stories about weakening consumer spending and the specter of recession.

Third, we've got a handful of really hated companies. Specifically, I'm talking about the banks, thrifts, and builders that caused and are feeling the fallout from the mess we're in.

What does that add up to? Bargains.

Like a kid in a candy store ... and the candy's on sale
One option is one of the banks -- specifically Wells Fargo (NYSE: WFC  ) . It's been feeling the effects of the credit crisis unwinding and shares are down some 33% from the highs reached last fall.

There's also the investment bankers and brokerages. While E*Trade (Nasdaq: ETFC  ) is struggling, others, like JPMorgan Chase (NYSE: JPM  ) , might be worth investing in. Heck, if it gets cheap enough, I'll even take a closer look. (Even possibly bad companies can be good investments if you get them at the right price.)

Then there are (still) the retailers, trying to survive declining same-store sales and decreased consumer spending. This is where a strong balance sheet is helpful. American Eagle Outfitters (NYSE: AEO  ) , for instance, has $370 million in cash and short-term investments and no debt. As long as cash flow keeps coming, and it has so far, the company should survive to become great again.

Even some big name companies have been dragged down: Pfizer (NYSE: PFE  ) , maker of a lot of the drugs we take, for instance. The stock has been falling for most of the past year.

Finally, there are restaurants. Chipotle Mexican Grill (NYSE: CMG  ) , the burrito spinoff from McDonalds, and Yum! Brands (NYSE: YUM  ) , the owner of both KFC and Taco Bell, are both off significantly. Possibly all that talk about lower consumer spending in 2008 has driven their prices down. But really, who cares about 2008? For my money, I'm more interested in companies I can buy today to own in 2013 -- so thanks for the bargains!

"When Miller and Nygren speak, people listen."
Investing in the above industries might seem counterintuitive now, but Bill Miller of Legg Mason says au contraire:

[Several] years ago, everyone wanted tech and Internet and telecom stocks ... The time to buy them was in 1994 or 1995, when they were cheap. But in 1994 or 1995, people wanted banks and small and mid caps, which should have been bought in 1990, and well, you get the picture.

Bill Nygren, another great value investor, agrees. Looking at the current economic situation, he wrote, "What usually happens is that suffering industries begin to recover, the next crisis comes from somewhere least expected, and the cycle of creating new investment opportunities starts anew. We have no reason to believe it will be different this time."

What these gentlemen know is that investing today in areas that aren't well liked will position your portfolio for when we come out of this bear market. There will be another bull market. What we have now is the chance to grab some good companies while they're cheap.

So what are you going to do? Stop investing in stocks altogether, worried that things will be different this time? Or listen to master investors (not me -- Miller and Nygren!) and look at some opportunities?

I know what I'm going to do, and I can hardly wait.

Finding value
If you'd like some help in figuring out if a beaten-down company is worth investing in, take a look at our Motley Fool Inside Value service. Philip Durell and his team look in downtrodden areas of the market, just as Miller and Nygren advise.

Since the newsletter's inception, its picks are beating the market; plus, you can see the stocks they're recommending today for free with a 30-day trial.

This article was first published Feb. 12, 2008. It has been updated.

Jim Mueller owns shares of American Eagle and Yum! Brands, but no other company mentioned. The Motley Fool owns shares of American Eagle and Legg Mason. The former company is a Stock Advisor recommendation, while the latter is an Inside Value pick, as is Pfizer. Chipotle is a Rule Breakers choice and a Motley Fool Hidden Gems selection. JPMorgan and Pfizer are Income Investor recommendations. The Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (7)

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 June 24, 2008, at 12:18 PM, aceplace wrote:

    I am sorry but you are spewing the very FUD on ETFC that your article refers to. Hypocritical.

    "the news media fan the flames of panic with constant stories about weakening consumer spending and the specter of recession."

    VS.

    "There's also the investment bankers and brokerages. While E*Trade (Nasdaq: ETFC) is struggling, others, like JPMorgan Chase (NYSE: JPM), might be worth investing in."

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 670418, ~/Articles/ArticleHandler.aspx, 11/23/2014 1:21:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement