"I will tell you how to become rich.
Close the doors.
Be fearful when others are greedy.
Be greedy when others are fearful."
-- Warren Buffett
Can't argue with that, can you? I don't need to remind you of how much fear is in the market these days. It's a real gut check, but that fear is creating opportunities for investors patient and diligent enough to search for the babies thrown out with the bathwater.
Using our Motley Fool CAPS ranking system's screening tool, I scanned for bargain companies with the following characteristics:
- Five-star ratings -- the highest our CAPS community offers.
- Estimates of profitability in 2009.
- Terrible performance over the past 52 weeks. Yes, almost every stock meets this condition, but I'm looking for the bargain opportunities -- solid companies with great outlooks that are being valued like total losers.
Have a look:
|
Company
|
52-Week
Price Change
|
Recent Price
|
Forward Earnings Estimates
|
|
Berkshire Hathaway (NYSE: BRK-A )
|
(25%)
|
$87,200
|
$5,415
|
|
National Oilwell Varco (NYSE: NOV )
|
(63%)
|
$29.55
|
$3.48
|
|
Procter & Gamble (NYSE: PG )
|
(18%)
|
$51.91
|
$3.76
|
|
Teck Resources (NYSE: TCK )
|
(61%)
|
$16.15
|
$1.37
|
|
3M (NYSE: MMM )
|
(12%)
|
$58.76
|
$3.93
|
Data from Motley Fool CAPS and Yahoo! Finance, as of July 7, 2009.
None of these are necessarily recommendations -- just good starting points for you to dig a little deeper. You can rerun an update of this screen yourself, if you like.
A closer look at 3M
Conglomerates rarely work. Bureaucratic pressure too often leads to a bumbling and disorderly corporate parent. It happened to Tyco and Citigroup, and some might even say it's happening to General Electric (NYSE: GE ) .
But a few rare companies have pulled it off. Berkshire Hathaway is one. Johnson & Johnson (NYSE: JNJ ) is another. Manufacturing giant 3M is lucky number three.
What makes these conglomerates different? One distinguishing factor is their ability to decentralize individual business components. Rather than a CEO barking orders and making decisions regarding a sea of unrelated businesses, decentralized conglomerates often leave individual managers alone, allowing creativity, skill, and experience to flourish.
That's certainly worked for 3M. From year-end 1995 to 2008, earnings per share have grown at nearly 11% per year. For a company this size, that ain't bad.
What might surprise some investors is how diverse 3M really is. The company's more than just Scotch Tape and Post-it Notes -- 3M is knee-deep in everything from health care to automotive equipment. Here's how sales from each division break out:
|
Segment
|
Percentage of Total Sales*
|
|
Industrial and Transportation
|
30.9%
|
|
Health Care
|
17%
|
|
Safety, Security and Protection Services
|
14.4%
|
|
Consumer and Office
|
13.6%
|
|
Display and Graphics
|
12.9%
|
|
Electro and Communications
|
11%
|
|
Other
|
0.2%
|
Source: Company filing.
*Fiscal year 2008.
Solid geographic diversity is another key area setting 3M apart. Here's a breakdown of where sales came from in 2008:
|
Location
|
Percentage of 2008 Sales
|
|
United States
|
36.3%
|
|
Asia Pacific
|
25.4%
|
|
Europe, Middle East, Africa
|
27.5%
|
|
Latin America/Canada
|
10.8%
|
That combination of decentralization, product diversification, and geographic diversification makes 3M a unique conglomerate.
And at these prices, our CAPS community is firmly bullish. Of the 4,000-plus members rating this stock, 97% expect it to outperform the broader indices. With shares trading at around 15 times forward earnings and offering a 3.5% dividend yield, it's not hard to see why. Here's how CAPS member PsychoDr put it in April:
Generates huge cash flow, even with a down market. Well diversified, nice low PE, and best of all, not really expected to blow the doors off with earnings. What Jeremy Segal calls an El Dorado company. While I would never say a dividend is safe, the cash flow and the history indicate that [3M] is more likely than not to keep paying, and they might even raise it more. Price is extremely low for this company and they still have options to cut costs and mitigate the recessions impact on profit margin.
Your turn to chime in
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