Your Once-in-a-Lifetime Investing Opportunity

"Panic" might be too weak a word for what's going on out there. It's not just that the stock market has been affected -- the far larger lending market has seized up as well. Banks don't want to lend to each other, much less those of us out here in the real world, and the bond markets remain off-limits to all but the strongest of borrowers.

And all of that is leaving everyone terrified. The long-term future simply doesn't matter all that much to a company that risks oblivion in the next week if it can't roll over its maturing debt or cover tomorrow's margin call.

The companies hit hardest by this mess have been the ones that were built on the presumption of easy, cheap, and unlimited credit. Homebuilders like Centex (NYSE: CTX  ) are in a world of hurt, and even the strongest automobile titans like Toyota (NYSE: TM  ) are feeling the impact of the credit crunch. But it was investment banks and financial institutions -- the largest and fiercest players on Wall Street -- that were literally ground zero for this implosion.

The list of companies brought down by the implosion -- Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac -- includes some of the most notable names on Wall Street. The list of companies struggling to survive the economic downturn grows longer by the day. And that's creating a once-in-a-lifetime investing opportunity -- for you.

It's your turn
There are unbelievable bargains available now, the likes of which we haven't seen since the days of Benjamin Graham. Under less unusual circumstances, Wall Street's financial wizards would be leveraging themselves to the hilt to take advantage of the market's current conditions. But with their funds cut off, redeemed, or diverted into mere survival, they're forced to sit on the sidelines, rendered completely unable to act.

That's where you come in. As long as you have the patience to wait out the volatility, you can buy those very same bargains (without the leverage) and be richly rewarded when things return to normal.

The country, the stock market, and the strongest companies of the era survived the Great Depression. We'll get through this mess, too. Much the way Benjamin Graham and his protege Warren Buffett did after past catastrophes, the superinvestors of this generation will make their fortunes buying on the heels of this one.

Where to play
Even if you don't aspire to be the next Graham or Buffett (and don't have $5 billion sitting around with which to invest in a struggling company), there are plenty of bargains available to you right now.

But be careful out there -- not every company that has fallen is legitimately cheap. We're in the throes of a global economic rout, after all, and many companies deserve their slashed share prices.

Those whose prices have dropped as a result of forced selling or general market malaise, on the other hand, are the most likely to reward their shareholders for holding on through this mess. They typically have

  • Strong balance sheets,
  • Reasonable or cheap valuations, and
  • Moats protecting their core businesses.

Companies like these, for instance:

Company

Moat

Value proposition

Wal-Mart

(NYSE: WMT  )

Unparalleled supply chain.
Scale to leverage best prices.

Trailing P/E below 16;
$5.9 billion in cash on hand.

Microsoft

(Nasdaq: MSFT  )

So dominant, it's routinely classified as a monopoly.
Nobody likes Vista, but they're buying it anyway.

Trailing P/E below 11;
$19.7 billion in cash on hand.

Altria

(NYSE: MO  )

In spite of knowing better, people still smoke.
Government-enforced market-share protection thanks to master settlement agreement.

Forward P/E around 9;
more cash on hand than total debt.

Oracle

(Nasdaq: ORCL  )

Dominant position in database market gives it leverage in related business software categories.

Trailing P/E below 15;
more cash on hand than total debt.

Verizon

(NYSE: VZ  )

Captive markets for line-based phone services.
Already built-out cellular network.

Trailing P/E below 15;
total debt less than 1/2 of revenue.

Although these companies are likely to be affected by the U.S.'s newly declared year-old recession and the general tightening of consumer credit, their basic businesses are solid. Solid businesses, clean balance sheets, and cheap prices compared to intrinsic value mean these are the types of opportunities you should be taking advantage of right now -- while you still can.

This won't last forever
In ordinary times, companies this strong would not be available at such attractive prices. These deals are available only because the global financial meltdown has knocked out so very many of the institutional investors who would ordinarily bid these companies up much higher.

If you want to pay bargain-basement prices for some of the strongest businesses around, this is when you should pounce. It's not easy to buy when everyone is panicking, but it's precisely how generations of successful value investors have made their fortunes.

At Motley Fool Inside Value, we're taking advantage of the brief window we've been given -- and we're excited to buy companies like these at such reasonable prices. You can get a free, 30-day trial, with all of our recommendations but no obligation to subscribe, just by clicking here.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of Microsoft. Wal-Mart and Microsoft are Motley Fool Inside Value selections. The Fool's disclosure policy knows the corporate American Express number but isn't telling.


Read/Post Comments (16) | Recommend This Article (70)

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 December 03, 2008, at 5:27 PM, FinancialFellow wrote:

    I think it is pretty clear that now is a great time to buy stocks if you are looking toward the long term. I'd like to see someone suggest just buying an index fund and holding onto it as opposed to stock picking. That said, I think the author does a decent job of explaining why he values Wal-Mart and Verizon, for example.

    It would be nice if people who haven't started investing for retirement to use this current down market to provoke them to get started. Here's an interesting related article: http://financialfellow.com/2008/11/24/yet-another-reason-to-...

  • Report this Comment On December 03, 2008, at 8:48 PM, The1MAGE wrote:

    I should point out that Wal-Mart isn't pushed down as far as other stocks. It is even up for the year.

    I don't think it is a bad investment, but not the bargain the other stocks might be.

  • Report this Comment On December 04, 2008, at 1:35 AM, WakeJKirk wrote:

    Excellent article, I respect the author for not only explaining his picks in "laymen's terms" but also not trying to sell us anything.

  • Report this Comment On December 04, 2008, at 11:03 AM, vest0r2 wrote:

    Why do you feel that stock prices will not continue to slowly slide down towards zero?

  • Report this Comment On December 04, 2008, at 1:22 PM, Dadw5boys wrote:

    Well I am taking a chance on ALBCF a great B2B China Website that has steady growth even in this economic enviorment. We will see a lot of this site soon even in the USA.

    www.alibaba.com check it out.

  • Report this Comment On December 04, 2008, at 2:35 PM, player23m wrote:

    It is impossible to fathom the stupidity and evil in both the government and investors today. We are NOT in a recession. It is much worse. We are in a GREAT DEPRESSION! It is sad to see people returning to the market so early. Here’s the important reason why: right now the TRUE state of the US is similar to that of most 3rd world countries and getting much worse. The figures shy away from the truth because investors are very intent to force out a false hope with unreasonable inflation in market values while they trying to quickly recover their losses. But the figures obscure reality, one is with unemployment. The initial claims drop this month is HORRENDOUS NEWS. People aren’t beginning to claim unemployment this month because THEY WERE ALREADY LAID OFF and have been for over a year now. The government has already stated the recession began in 2007 but failed to label it as a depression. Instead, they should have looked at continued claims clearly up 200% and climbing, but even those figures lie since unemployment can only be claimed for up to 6 months, after that the government lies and removes you from the counts. The truth is, nearly everyone that lost their jobs last year are still without work, and those people that have kept their jobs are either working less hours or being laid off this month and won’t be included in the unemployment counts because they are ineligible to file for payment. Also not included are those that have lost their second job or simply quit when management urged them to leave. They too are ineligible to qualify for unemployment. A realistic way to see those without work would be to compare job positions currently filled now vs. those that were filled this time back in 2005-2006 with corrections for population growth and credit for shorter work weeks and pay drops. THE TRUTH IS AT LEAST 15% OF THE NATION IS CURRENTLY UNEMPLOYED AND RISING! I would even expect it to reach some 25% by February with poverty reaching very well above some 40% also adding a steady increase in the cost of living when including energy price increases and food costs with the soon to return rises in oil. People have to take loans and use credit cards just to put food on the table and clothes on their backs. Am I the only one who realizes the system has broken when I have to flash my American Express business card to everyone else in line behind me at Wal-Mart? And most likely I’ll be paying double the price that I paid for that same item just a few years back even though I don’t make double the money?!

    The only reason the market ever rises is because we treat it like a casino game, play until you win a little then cash out and go home or throw more money on the table until you have to pull out and take a loss, either way the casino still makes a killing but someone somewhere gets lucky and goes home happy with your hard earned cash. If only people would see through the blanket of lies then we would have a free fall of true value corrections where stocks actually reflect what they are worth instead of what they might be worth if they actually win the lotto, but even if they do succeed for a time, every expanding business will bust their bubble at some point.

    People have forgotten stocks are just virtual items that carry no real worth, like a coupon worth 1/1000th of a cent. Futures trailing on estimated earnings are a joke. Any company can only post more profit with a price increase or a cost drop, if they were to make money at some point then even a dumb manager would spend that gain on some expansion, then give himself a raise to offset any excess profit and keep the ball rolling. Such expansion is the only true way a business can succeed and overcome competitors in the long term. So price vs. value should always equal 1 to 1 otherwise it is overvalued. The free market is such a farce these days it makes me sick! Prices at 5 to 15 times trailing earnings, maybe you'll live long enough to see it, but even at a realistic 5% gain per year, will you live to be 100?! More importantly, will the company survive at all?! Honestly! Wall Street must admit when stocks explode, it is just a bunch of lucky investors puffing hot air about hitting the triple 7’s just don't be the one left in the cold when all the hype dies and prices make their corrections back to zero.

  • Report this Comment On December 04, 2008, at 5:35 PM, The1MAGE wrote:

    player23m

    Please stop with the fear mongering.

    New unemployment claims are based who is receiving unemployment compensation, but that data is not used for total unemployment data. That is based on a separate polling data, and is quite accurate.

    In the "Great Depression" it took years before unemployment reached 25%, so I seriously doubt it would happen so quick now.

    Then stocks are not "virtual". They involve actual ownership of real companies.

    And yes there are people who do gamble in the stock market. They are the idiots who don't understand it. I prefer to invest.

    It is the people like you who do not understand how the market works that will fail. A lot of fortunes were made during the Great Depression, (as hard as FDR tried to keep anyone from making any money,) and a lot of fortunes will be made in this economy.

    The worst thing anyone can do is just whine and complain. These are the people who do nothing but. But there are plenty of people out there actually doing.

    I would rather tell people to do the latter instead of the former.

  • Report this Comment On December 05, 2008, at 1:39 PM, winner4308 wrote:

    When are the stockholders going to start to sue the board of directors of many of these companies for collusion? The board of directors are supposed to protect the shareholders instead they are helping the CEO's fleece the companies they work for with malice and contempt for the shareholders. Case and point Ford Motor Company, signed new CEO within the last 24 months giving him a 20+ million sign on bonus and allowing him and HIS WIFE unlimited use of the corporate jet!

    I say we tar and feather the Ford Motor Company board of directors, or at least send them to the unemployment line!

    Come on you people, supposed educated investors! As long as these CEO's and Boards keep screwing the shareholders this market will continue to sink! Who is worth more then a million dollars per year + the benny's that go along with the position to run a company? PERFORMANCE should be rewarded after the company does well and the reward should me METERED over the long term. Does anyone GET what I'm saying? Doesn't it seem to ANYONE that were in the mess were in, partially due to excessive compensations to incompetent management by incompetent boards?

    Does anyone know if individual shareholders can sue board of directors to dis-engorge the board members of compensation received for making decisions and contracts detrimental to the company they work for?

    Finally, let me just say, that I would never invest in a company like Ford, GM and the dozens of financial companies that practice this type of contempt for their shareholders! Board of directors are supposed to protect the shareholders not help the management fleece the companies they work for!

    WAKE UP PEOPLE!!!!!!

  • Report this Comment On December 05, 2008, at 2:00 PM, stanton17 wrote:

    I agree with the author that the market is offering tremendous bargains and may continue to do so in the near future. I continue to invest adhering to a dollar-cost averaging strategy. I also admit to investing a bit extra in low risk/wide moat companies that are cash rich, fall below Morningstar's "Consider Buying" pricing, and continue to advertise throughout this dour economic climate. It seems as if companies that continued advertising during the Great Depression not only fared the best, but in many cases, also prospered.

    And thank you player23m for offering your opinion regarding both current and future economic climates. There's always two sides to a story. You simply must do what's in your best interest. If sitting on the sidelines or selling all your investments is the answer, then so be it. I respect your right to do what you think is best with your hard-earned money.

    Note: I'm not quite sure why you call investors "stupid" and "evil"? Perhaps you're just trying to add emphasis to your arguments?

  • Report this Comment On December 05, 2008, at 8:21 PM, MAC4412 wrote:

    To player23m

    Did you ever think that your fear and panic is exactly the kind of behavior that has been driving the market down? I too believe in long term investing. During this entire time of turmoil I haven't pulled out of the market and continue to have faith that it will turn around. It may take some time, but I have time. Third world countries??? Really???? Have you ever been to one....we are very far from anything like that. Not sure I understand the "...Amex card flashing".. comment. Are you maybe one of the people who have been living above your means and now want to blame your situation on investors and the market? And yes, I do plan to live to at least 100. Remember, your temperment and temper have a lot to do with how long you'll live...and judging by your post, you may want to seek some professional help to deal with whatever you current situation is because you seem extremely stressed out.

  • Report this Comment On December 06, 2008, at 9:13 AM, WA0524 wrote:

    I continue to read the comments and it only convinces me more that what is needed for today's market is a new investment strategy. I was previously invested through a Financial advisor, only to find out that his firm was more motivated to their own profit objectives and not mine. So I pulled out of the investments the had me invested in September 2008 that was basically a "Buy and Hold" strategy of poor performing high expense ratio mutual funds. I then started to pay more attention to the market dynamics and applied my professional training as an Electrical Engineer to evaluate a considerable amount of available technical market data. I also researched past Bull and Bear markets for technical indicators and correllation factors. Needless to say that this took a considerable amount of my personal time to accomplish. However, in October 2008, I fould a very simple, very oftened overlooked, investment strategy that was directly correllated to making considerable profits in a Bear market. I tested this startegy through October and in November, I began to actively trade this strategy in the market. I am happy to say that I have made a considerable amount of money, and without a Financial Advisor" to distort my approach. I can only say this, I am convinced

  • Report this Comment On December 06, 2008, at 9:30 AM, WA0524 wrote:

    I appoligize for not completing my comment, but what I wanted to say is that in today's market I would strongly suggest that you adopt a more dynamic startegy than "Buy and Hold". I will end by saying that my startegy works for this Bear market and although I love my country and, as a Vietnam Veteran, fought for the freedom we all enjoy today, I am making considerable income in this Bear market, and forgive me, I hope that the market continues to try and seek the bottom of the market. I am sorry, that I can't reveal what this strategy is in this forum because I am currently producing an ebook that describes exactly how I did it; however, I challenge each reader to go back to their Financial Advisor with the simple question of - Why do I have to wait for the market to turn-around to make money on my investment? Good Luck

  • Report this Comment On December 07, 2008, at 8:04 AM, papa1944 wrote:

    Personally, I am down about 28%, but some things are coming back. And I, like most, can't afford that level of loss. I thought I was seeing things with Walmart, Coke, McDonalds, etc continued to spiral down and I don't anticipate any remarkable recoveries anytime soon. But I'll remain optimistic and hang in there. Good grief, some of your forecasting is mega depressing. Yes, the big boys at the top are going to always look out for number one, but don't forget people, we are the greatest nation in history and I refuse to give up the ship. It isn't just here, look at global markets. While everyone gets their life jackets on, I choose to stay in position, watch the market trends, have a drink and play the game. You go USA.

  • Report this Comment On December 07, 2008, at 10:35 AM, WA0524 wrote:

    I too believe in the great country we have that is why I don't invest in foreign markets! However, allow me to comment on the traditional investment strategy of "buy and hold". While I am always a believer that buying equities in essence makes me a "partner" in some of the leading large and small business of the USA, I do also believe that while they prosper e.g., increasing earnings and dividend payouts, I will continue to increase my holdings i.e. buy more stock. However, like most traditional investors I became acceptable to then fact that market turn around meant that I had to watch my investment positions deplete their value and hope that someday they would recover to their most profitable levels. That approach was maybe acceptable while you continued to work and "accumulated" wealth. But my message today is for the 77 million

  • Report this Comment On December 07, 2008, at 10:57 AM, WA0524 wrote:

    "Baby Boomers" that are more interested in wealth distribution and can't wait until the market recovers. Believe me when I tell you that there are ways to make money in the market both on the way up and more importantly on the way down. I have asked more than fifty Financial Investment Advisors, who again traditionally expect a fee for services, how I can implement an inverse investment strategy. I am sad to say not one has been able to give me the alternative that I sought. So I ask all investors, especially retirees and soon to retire "Baby Boomers" that are watching their portfolio's go down in value and are taking anti-depressant drugs to ask their Financial Advisor about strategies to profit in a down market. Explain that you are not satified with the response of "stop watching your portfolio" and by the way perhaps it comes at the same time as when you have to pay your assets under management fee! There is a better way and I have found it and as you read this, I have revealed a part of that strategy. I appoligize if my comments appear arrogant, but I am within 6 months of retiring and all I have to depend on are my investments and for that reason, I will not blindly accept opinions of others that directly affect my life income in retirement. So my message is not meant to be depressing but to assure you there are better ways to manage your income and large part of that is that you personally get involved and not accept the conclusion of just sitting and watching!

  • Report this Comment On December 18, 2008, at 10:37 AM, DreamBuch wrote:

    I also see great opportunity in this market. My problem is (and I'm guessing I'm not alone) is that I was already almost fully invested when the bottom fell out. Of course I'd like to dump in a large amount now, but don't have the extra cash sitting around. I've had thoughts of taking out a big loan to invest in these bottom basement prices. But don't seem to be able to pull the trigger.

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