The Best Opportunity This Decade

Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we're currently in). 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 are in another recession right now and a big bear market, 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 fans the flames of panic with constant stories about weakening consumer spending and how the recession is hurting everything from Amazon.com (Nasdaq: AMZN  ) to ZymoGenetics.

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 Allied Irish Banks (NYSE: AIB  ) . Even though it has had to accept capital from the Irish government, it is probably still the best of the Irish banks. Fears that the bank will be nationalized have driven the stock to really low levels. If it can survive the downturn in the Irish economy and stay far away from the Irish government, it could turn into a fantastic investment from this point forward.

There's also the investment bankers and brokerages. Some, like Morgan Stanley (NYSE: MS  ) 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. Gap (NYSE: GPS  ) , for instance, has $1.4 billion in net cash and short term investments. 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 in defensive industries have been dragged down. Merck (NYSE: MRK  ) , 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 other sectors such as consumer goods and Procter & Gamble (NYSE: PG  ) or, even, tech, such as Intel (Nasdaq: INTC  ) . Both are off significantly from their highs of late last year. Possibly all that talk about lower consumer and company spending in 2009 has driven their prices down. But really, who cares about 2009? For my money, I'm more interested in companies I can buy today to own in 2014 -- so thanks for the bargains!

"When Buffet speaks, people listen."
Investing in the above industries might seem counterintuitive now, but Warren Buffett says au contraire.

To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Bill Nygren, another great value investor, agrees. Looking at this type of 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."

These gentlemen know that investing today in areas that aren't well-liked will position your portfolio for the eventual end 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 -- Buffett and Nygren!) and look at some opportunities?

I know what I'm doing.

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 Inside Value service. Philip Durell, Ron Gross, and team look in downtrodden areas of the market, just as Buffett and Nygren advise.

Since the newsletter's inception, their 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 on Feb. 12, 2008. It has been updated.

Jim Mueller owns shares of Allied Irish Bank, but no other company mentioned. Intel is a choice at Inside Value. Amazon is a Stock Advisor selection, while Gap is a former recommendation. Allied Irish was chosen by Global Gains. The Fool owns shares of Allied Irish Bank and covered calls on Intel and Procter & Gamble. The Fool has a disclosure policy that believes, deep down, that the market will turn around.


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  • Report this Comment On January 27, 2009, at 8:42 AM, MotleyGulibles wrote:

    We are entering an "era of responsibility." - Barack Obama

    MF might want to address the issues

    To the MOTLEY FOOL

    Please do not send your promo mail as a blanket response when you receive a personal comment re. your PRO service solicitation from an ex. MDP member. This kind of impersonal response is counterproductive. If it ever dawns on you (MF) to interact with your customer base in a more dignified manner you might well benefit from it.

    Following the dire results of Million Dollar Portfolio, it is an insult for any educated individual or MDP member to receive your PRO service hype with a bogus $500.00 rebate and offer that service at a then discounted $1499.00 per year. Your best PR would be to have those who subscribed at the onset of MDP, receive 6-12 months free as a way to offer them the opportunity to recoup their heavy losses incured by following the Garner bros. over the cliff. And if you dare reply (as per MF standardleitmotiv) "no one forced anyone to buy", you deserve having your Foolish headquarters bombarded with rotten tomatoes!

    Why would anyone be inclined to trust your new PRO service? As per your hype, MDP was supposed to be the cream of the crop and as we all know your subscribers tanked with it ( including myself) And this, thanks to some VERY poor strategy on the part of the foolish Fools, and quite apart from market conditions. It looks like your due diligence in Ireland re. AIB ( Allied Irish Banks) was done in the pub, and at MDP's expense. AIB pps from $40.00 to $1.03 with no further actions to preserve MDP members investment investment is nothing short than disgraceful.

    Your Foolish hype is your worst enemy, your constant promo mails and the conflictive information between the free newsletters and your paid services does not serve you well, or does it entice to continue paying for mediocre advice. As for those that still do, the MF's MDP dire performance, has depleted much of their hard earned money and savings.

    Madoff was thought to be a genius to offer his "privileged clients" 8 -12% return and he tanked because it was unsustainable and turned Ponzi to meet his obligations.

    If you are the geniuses you pretend, why don't you create a fund that will outperform the markets, and put your money where your mouth is. Or, does the marketing hype bring you a better bang for your buck? The latter is now obvious.

    Leading your subscribers down a road you clearly hype and are clearly not accountable for is totally irresponsible.

    Food for thought.

  • Report this Comment On January 28, 2009, at 1:24 PM, TexasLonghorns wrote:

    Heartily AGREE with you "MotleyGulibles"!!! Hear...Hear. I was in MDP until August, 2007. Saw the writing on the wall with such notable calls as AIB, AEO, LM, CX. I don't think one of those stocks didn't go in the tank for at least 40% of what was paid for them. I got out down about 20%, but God knows what that thing is down now.

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