Great Companies Waiting for You

It's true that when the market gets overheated and swells beyond a reasonable valuation, bargains can be hard to find. And it's true that when the market has a meltdown, as it did in 2008, compelling stock propositions are plentiful. But here we are, following an impressive 2009 market gain of more than 26%, and you might reasonably wonder whether it's too late to find great buys. It isn't.

One of the most reassuring things about stock market investing is that no matter what the state of the overall economy, no matter how the market has recently fared, there will always be bargains. Even in 2008, when the market dropped nearly 40% and almost every stock sank to some degree, there were winners -- Family Dollar was up 38% for the year, while Wal-Mart (NYSE:WMT) rose 20%.

Given that there are always some bargains, the trick is to find them. Here's one way you might approach looking for bargains today -- screen for them. I recently ran a screen in our CAPS community of investors, looking for mid- to large-cap stocks with five-star ratings (out of five), which haven't advanced much over the past year. That's a way to find enterprises that are promising and well-regarded and that probably haven't gotten ahead of themselves too much.

Here are some of the results. I'll add their market caps and recent price-to-earnings (P/E) ratios, to add perspective:

Data: Motley Fool CAPS.

If you run such a screen and get too many results, remember that you can always narrow it down by adding additional criteria, such as perhaps a minimum revenue growth rate or return on equity.

Seek trusted sources
You can also get pointers to possible bargains by seeking recommendations from sources you trust. You might, for example, take advantage of a free 30-day trial of our Motley Fool Inside Value newsletter, during which time you'll be able to access all past issues and recommendations. Its picks have been outpacing the S&P 500 by more than 7 percentage points since its 2004 inception.

The Inside Value team finds its Best Buys Now by employing these five key practices:

• Knowing how to estimate intrinsic value.
• Insisting on a margin of safety.
• Having the patience to wait for the right price.
• Checking your emotions at the door.
• Knowing when to sell.

These permit the team to find bargains in any market, by comparing companies' current prices with their intrinsic ones, and demanding a margin of safety. Since at any given time, some companies will clearly be great, but won't be trading at attractive prices, you have to have patience to wait for a good entry-point price, and to be able to keep your emotions in check -- not throwing caution to the wind and buying out of greed, for example, or selling in a panic if a stock falls.

You can develop all these skills and habits on your own, or you can let trusted sources such as our Inside Value team put them to work for you.

Opinions abound
Another good source of portfolio candidates is our CAPS community of investors, where thousands of participants register their expectations for thousands of companies. One strategy you might employ is to zero in on the highest-rated (All-Star) participants, and see which companies they have the most faith in. Member BravoBevo, for example, was recently No. 1. Some of this All-Star's recent picks include Endologix and Westwood One, and BravoBevo is bearish on Medtronic (NYSE:MDT).

Most of us accumulate new money to invest as the months go by; thankfully, we can almost always find promising companies in which to invest. Don't pass up today's exciting opportunity to build wealth for your future.

Longtime Fool contributor Selena Maranjian owns shares of Wal-Mart, a Motley Fool Inside Value recommendation. The Fool owns shares of and has written puts on Medtronic. The Fool owns shares of China Mobile and FPL Group. The Motley Fool is Fools writing for Fools.