5-Star Stocks Begging to Be Bought

"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 incredible 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, since they are the best of breed.
• Trailing dividend yields of at least 3%.
• Price-to-book ratios no greater than 1.
• Dreadful performance over the past 26 weeks. Yes, most stocks meet this condition, but I'm looking for the big crashers. The complete capitulators. The mothers and fathers of all bargains.

Among others, I dug up these five, which have been shredded to such paltry levels that it's hard to keep ignoring 'em:

Source: Motley Fool CAPS as of Jan. 14, 2009. Price changes from July 18, 2008 and Jan. 14, 2009.
TTM = Trailing 12 months. Dividend yields are trailing.

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.

Perhaps the mother of all opportunities
Yep, most of these stocks hail from the commodity world in one way or another. As you'd expect from a bargain-hunting stock screen, right? The entire sector -- from oil, to gold, to food -- has been decimated after the vanishing of the once-hyped theory that demand from China and India would drain the world's wells and mines. One lesson learned in the past six months is that bubbles burst faster, and with more ferocity, than they form.

But maybe that's the reason so many commodity stocks keep popping up on value-investing screens -- bubbles invariably overshoot on the way down. And if today's prices are any indication, more than a few commodities are due for a turn.

How do I know? Look at oil futures. A barrel of crude can be had for around $35 today. But looking at the oil futures market, a one-year contract prices oil near $60 a barrel -- 71% higher than today. You could take that one of two ways:

• Futures markets are confused beyond belief. That's why prices are so scattered.
• Prices are so alarmingly low today that even in this deflationary environment, the thought that they'll stay low for long is laughable.

Our CAPS community tends to take the latter view. One dirt cheap energy stock they love is Penn West Energy Trust. As is the case with Pengrowth Energy Trust (NYSE:PGH) and Harvest Energy Trust (NYSE:HTE), a frequent and considerable dividend is the big allure with Penn West.

While energy's collapsing price has squashed payouts, the industrywide panic has pushed Penn West shares so low that yields are frankly staggering. The first 2009 monthly payout will be $0.23 per share, which equates to a 23% annualized yield going forward. Now, fair warning -- the Canadian government has dropped an axe on the tax structure of these companies, but those changes won't take effect until 2011. Until then, the cash will flow aplenty, my friends.

CAPS member Dramissed laid out a Penn West bullish pitch in December that sums the situation up succinctly:

This is a cheap price for this trust right now. The price of oil will rise again. The high dividend yield is a good incentive right now. Penn West is a stong enough company that even when the tax situation changes for trusts in Canada in 2011, it will still be an excellent company to own and hold on to for future growth.

The spectacular yields that can be had in energy trusts highlight a key tenet of investing: margin of safety. Even if yields are slashed, even substantially, you'll still be in for a payday that's nothing to sneeze at, to say the least. Heads you win, tails you win a little less.

Take it away, Fool
Disagree? See it from another angle? Just want to see what the rest of the pack is saying? More than 125,000 investors use CAPS to share ideas and swap opinions. Click here to check it out. It won't cost you a dime.

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