It's something I never thought I'd see -- Jim Cramer and Warren Buffett agreeing.
I mean, Buffett is the master of value investing whose favorite holding period is, famously, "forever." Cramer, on the other hand, believes "there's always a bull market somewhere" and encourages frequent trading in pursuit of today's hot stocks.
They couldn't be more different -- so why are they agreeing? And does this signal some kind of economic end times?
It's even worse than that
It's not actually the first time they've agreed -- they both originally supported the government's attempts to bail out the economy. And now, after seeing the utter destruction wrought by those plans, they're both expressing concerns about the consequences.
In his recent annual letter to Berkshire Hathaway shareholders, for instance, Buffett reiterated his support for government intervention into the crisis -- but he had this to say about the effects of the bailout:
Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge.
Likewise, Cramer was also an early advocate of these bailouts, going back as far as his famous 2007 rant urging Bernanke to lower interest rates. Yet, after seeing the government rescue plans do more harm than good and watching trillions of dollars of stock market wealth evaporate, Cramer largely changed his tune:
We have an agenda in this country now that I would regard as being a radical agenda. I think that we had a budget that came out that basically put a level of fear in this country that I've not seen ever in my life, and I think that that changed everything ... This is the greatest wealth destruction I've seen by a president.
The kind of help we all can do without
Despite good intentions, virtually every government intervention into this crisis has, I believe, actively made things worse.
Shabbily executed bank seizures essentially shut down the already damaged private debt market. The bailouts created zombie companies -- too damaged to succeed but too subsidized to fail -- thereby hampering the ability of the surviving ones to compete. All told, more than $13 trillion has been thrown into these poorly conceived rescue schemes, crowding out private capital that knows it can't compete against the government's printing press.
Because of all the business-busting strings attached to the bailout money, stronger banks like JPMorgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS) have applied to refund the money, thus burrowing out from under Uncle Sam's thumb. Imagine what's happening at companies that can't afford to give it back.
The madness continues
In yet another recent folly, Federal Reserve Chairman Ben Bernanke committed to buying about a trillion dollars of long-term Treasury Bonds. You know -- assets that Buffett recently described as the latest bubble.
It's gotten so bad that economists recently polled by The Wall Street Journal have assigned failing grades to both the president and Treasury Secretary Geithner.
But although the bailouts are rapidly undermining American business, they're creating an incredible opportunity for investors -- provided you're more Buffett than Cramer.
We're definitely Buffett
It used to be that if you found a company selling below its book value -- essentially what you'd have to pay to recreate the company outright -- that company was likely on the verge of collapse.
Now, however, we're seeing well-known and profitable companies selling below their book values. In essence, you could buy the whole company, sell off its brands piecemeal, unload any leftover buildings and equipment, and still likely come out ahead. Here are just a few worth researching further:
|
Company
|
Net Income
(in Millions)
|
Price-to-Book Ratio
|
|
CenturyTel (NYSE: CTL)
|
$344
|
0.97
|
|
Fresh Del Monte Produce (NYSE: FDP)
|
$129
|
0.74
|
|
Briggs and Stratton (NYSE: BGG)
|
$27
|
0.91
|
|
Speedway Motorsports (NYSE: TRK)
|
$70
|
0.74
|
|
Ceradyne (Nasdaq: CRDN)
|
$75
|
0.94
|
In any crisis, the time to buy the survivors is when things seem their worst. If we haven't gotten there yet, I'm not sure what that would look like.
At Motley Fool Inside Value, we don't like the circumstances that have made these bargains available, but we'll happily buy alongside Buffett. This may be your once-in-a-lifetime chance to buy such tremendously strong companies at such cheap prices. If you're ready to take advantage of the chaos all this help has left behind on Wall Street, join us today. To learn more or start your 30-day free trial, click here.
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This article was originally published on March 25, 2009. It has been updated.
At the time of publication, Fool contributor and Inside Value team member Chuck Saletta did not own shares of any company mentioned in this article. Berkshire Hathaway is a Motley Fool Stock Advisor recommendation. Berkshire Hathaway is an Inside Value selection. Ceradyne is a Motley Fool Rule Breakers pick. The Fool owns shares of Berkshire Hathaway. The Fool's disclosure policy agrees with Buffett more often than with Cramer
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