"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? (Sorry, Jim.) Despite the recent rally, high-quality companies at great prices can still be found. Watch a few minutes of CNBC, read a few blogs, talk to a few opinionated people, and there's no question about it: Fear still isn't hard to find. And that's great news for bargain-hunting investors.
We're looking for cheap stocks here. And not just stocks that have fallen in price, but good companies that are still cheap. There's a difference.
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 the year ahead.
- High returns on equity.
- Attractive valuation based on forward earnings multiples.
Have a look:
|
Company
|
Recent Price
|
Return on Equity (TTM)
|
Forward P/E Ratio
|
|
Agrium (NYSE: AGU )
|
$51.64
|
17.9%
|
9.7
|
|
Almost Family (Nasdaq: AFAM )
|
$31.75
|
20.0%
|
11.2
|
|
Burlington Northern Santa Fe (NYSE: BNI )
|
$82.47
|
16.9%
|
14.9
|
|
Novartis (NYSE: NVS )
|
$50.28
|
15.1%
|
12.9
|
|
Transocean (NYSE: RIG )
|
$88.18
|
19.2%
|
7.9
|
Data from Motley Fool CAPS and Yahoo! Finance, as of Oct. 13, 2009. TTM = trailing 12 months. P/E = price to earnings.
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 Burlington Northern Santa Fe
The inflation boogeyman is back, Fools. Gold is at an all-time high. Oil is closing in on $75 a barrel. Everyone loves Mises. Everyone hates Bernanke. Money velocity and M2 are discussed at the dinner table.
The inflation debate rests on how much, not when, it'll be. And for good reason: When the Federal Reserve wants inflation, it'll get inflation.
Despite squeals that we're on a path toward Zimbabwe-esque hyperinflation, the re-emergence of inflation isn't such a bad thing. For one, it's evidence that we've stepped back from the prospect of Great Depression 2. Second, it opens the doors to investment opportunities that were discredited amid last year's deflationary route.
Railroads are one of those opportunities. You'll remember Berkshire Hathaway's (NYSE: BRK-A ) (NYSE: BRK-B ) theory a few years back: As inflationary pressures push the price of diesel higher, rail transportation gains a competitive advantage over trucks, as rails are quite a bit more efficient. As CAPS All-Star danielthebear writes of rail giant Burlington Northern:
Rails are vastly more fuel efficient than trucks (about 10x) and with oil anywhere above $80, which will come sooner or later, they will usurp business from the trucking industry. [Burlington Northern] has 41% of their business which won't be touched by the recession (ag and coal) the other 59% (consumer products and industrial) fared well. In 2008 total consumer product shipments fell 6.4% (but revenue was up slightly) and industrial total shipments fell 4%.
Furthermore, the prime factor behind an economic rebound -- inventory rebuilding -- is hugely beneficial for shippers. When the economy imploded last year, step one for struggling businesses was to liquidate as much inventory as possible. Now that those inventories have been depleted, manufacturing resumes, and the need to ship follows.
You can see this in a few simple charts. First, check out total rail traffic year to date. Clearly, there's an improvement over the cliff-diving of late last year and early this year.
Second, look at the most current truck tonnage figures. While not as impressive as rail traffic, the short-term trend is perhaps more early evidence that the worst is behind this industry.
You take it from here
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