"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. Staying invested requires a real gut check, but the 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:


Price Change

Recent Price

Forward Annual Earnings Estimates

Activision Blizzard (NASDAQ:ATVI)




American Oriental Bioengineering (NYSE:AOB)




Diageo (NYSE:DEO)




Penn West Energy (NYSE:PWE)




Ingersoll-Rand (NYSE:IR)




Data from Motley Fool CAPS and Yahoo! Finance, as of June 29, 2009.

These aren't 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.

Beer, liquor, and profits
What's better than a sin stock? A sin stock with great international exposure. You'll find all that and more with booze king Diageo.

Diageo makes everything from Smirnoff to Guinness. Its strength resides in the power of its brand names -- customers buy what they like and what they know, and they rarely deviate. In much the same way that Coca-Cola (NYSE:KO) and Hershey's (NYSE:HSY) turned simple products into money-making machines, Diageo's success isn't hinged on future innovation; it's simply a factor of the brand-name dominance it already enjoys. It took a very simple, time-tested, and essentially commoditized industry and created an internationally known franchise. That's a rarity. And when it happens, the results are typically pretty pleasing. As CAPS All-Star dhd1491 wrote last fall:

Cuervo, Captain Morgan, Johnny Walker ... you gotta love these brands. In good times or bad, people are going to consume these brands (perhaps even more in bad times). Those brands throw off a reliable stream of cash, some of which pays a nice dividend, but there's plenty left over to pay down debt, retire shares or expand the business. [Diageo] is going to be a core holding of mine for a very long time, I expect.

As mentioned, one of the big benefits here is Diageo's international exposure. In 2008, fully 69% of sales came from outside North America. This provides a hedge against the possibility of U.S. dollar strength, and it lets investors enjoy international growth potential. It's also nice to know the rest of the world enjoys as much drunken debauchery as we do. If not more.

As for valuation, shares currently trade for about 13 times forward earnings estimates. That isn't screamingly cheap, but it's still attractive for a company that commands branding power and operates in an industry that most would agree is about as recession-proof as it gets. Furthermore, you're getting a pretty nice 2.7% dividend yield. Might as well get paid to wait for the economy to rebound, right?

Your turn to chime in
Have your own take on Diageo? More than 135,000 investors use CAPS to share ideas and swap opinions. Check it out, and speak your mind. It's 100% free to participate on CAPS.

For further Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Diageo and Coca-Cola are Motley Fool Income Investor picks. Coca-Cola is also an Inside Value pick. Activision Blizzard is a Motley Fool Stock Advisor recommendation. American Oriental Bioengineering is a Global Gains and a Motley Fool Hidden Gems selection. The Fool owns shares of American Oriental Bioengineering and has a disclosure policy.