Of all the insight I've heard over these few crazy months, the most telling came from an investor who appeared on CNBC last fall and, being entirely serious, advised, "There're only two positions to be in right now: cash, and fetal."

I get it. Even with the recent rally, it's ugly out there. Many companies that overleveraged their balance sheets are permanently impaired and will likely never fully rebound -- exploding industrials such as General Motors (NYSE:GM) come to mind. We had an unprecedented boom; now we're in the middle of an unprecedented bust. That's how markets work.

Even so, history tells us time and time again that market panics and forced sell-offs indiscriminately throw the good out with the bad. Amid the frenzy over financial markets and the "sell-now-ask-questions-later" mood of global investors, opportunities are being created for bargain-hunting investors like we haven't seen in decades.

Using the wisdom of our 130,000-member-strong CAPS community, I've hunted down a few dirt cheap, high-quality companies. Have a look:


Recent Share Price

Forward P/E Ratio

Expected Growth Rate

TTM Return on Equity

Dividend Yield

CAPS Rating  
(out of 5 stars)








H.J. Heinz














Data from Yahoo! Finance and Motley Fool CAPS, as of May 28.

All three are well-established, large-cap stocks. Let's break down the bullish argument for each one.

A great brand about to get better
PepsiCo is a dirt cheap stock with ridiculous returns on equity and a 3.5% dividend. Unlike some rivals, Pepsi has upcoming deals working in its favor that may intrigue investors digging in the beverage industry. As my Foolish colleague Matt Koppenheffer recently pointed out, Pepsi is making a run for its two largest bottlers, Pepsi Bottling Group (NYSE:PBG) and PepsiAmericas (NYSE:PAS). As CAPS member Garyestein recently wrote, the marriage of these business units could produce some pretty compelling synergies:

I like the idea of Pepsi buying it's bottlers so it can have total control of it's supply chain. This move puts them in a position to better control costs and thus increase profits.

You've got something on your shirt
While we're on the subject of iconic food names, I invite you to take a look at ketchup king H.J. Heinz.

For everyone and their cousin, the recession is taking a bite out of profits. This is especially true for Heinz, as bargain-hunting consumers scale down and start buying cheaper store-brand condiments to save a few pennies.

Nonetheless, that pessimism has pushed down this stock to a level that gives you a 4.6% dividend yield and prices the stock at about 13 times forward earnings. As is the case with companies such as Microsoft (NASDAQ:MSFT), the market is pricing incredibly powerful and moat-protected companies for mediocrity based on short-terms strains. For long-term investors able to see past these hiccups, this is what opportunity looks like.

Cheers to this one
Short of prohibition, there's little that can stand in the way of liquor giant Diageo. The maker of everything from Guinness to Captain Morgan (my personal favorite) gives you the highest-caliber brand names in an industry with incredible inelasticity. With a 3% dividend yield, a 44% return on equity, a cash-cow business model, and shares trading at just 11 times forward earnings, you'd have to be drunker than a skunk to not see the allure here. As CAPS member mcollin recently wrote:

Value Play. There is almost no downside risk at recent prices, the dividend is attractive, and their products are nearly recession-proof (even though most of their liquor brands are considered premium rather than economy).

Your turn to chime in
Have your own take on any of these companies? More than 130,000 investors use CAPS to share ideas and swap opinions. Click here to check it out and speak your mind. It's 100% free to participate.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Diageo, H.J. Heinz, and PepsiCo are Motley Fool Income Investor picks. Microsoft is a Motley Fool Inside Value selection. The Fool has a disclosure policy.