In my article yesterday, I noted that bear markets are often fertile grounds for finding undervalued businesses. In the absence of bear markets, value investors seek to exploit other market environments that can occasionally offer a gem or two. Let's examine two such environments.

Unfavorable industry in a generally optimistic market
While a rising tide lifts all boats, the occasional baby can be thrown out with the bathwater. Currently in the U.S., this seems to be the general state of affairs. The indexes are near their all-time highs, but any business currently involved with homebuilding, mortgages, or credit extension feels like the unwanted stepchild.

For the most part, the market has it right. Though it's trading at $16 with a supposed forward P/E of 8, I still don't care to own Countrywide Financial (NYSE:CFC). It could very well be a steal at these levels, but I don't need it in my portfolio. Nonetheless, I do pay attention to it and the other depressed stocks in the out-of-favor industries, waiting for something to grab my attention. When investors and analysts aren't looking, prices become more and more inefficient, and true value investors take notice.

Several years ago, when Warren Buffett was buying shares of PetroChina (NYSE:PTR), no one outside the Chinese government had really heard of the company. The result was that one of the most profitable oil companies in the world was selling at a significant discount to other equally profitable oil companies. Now, the Chinese market has gone up sixfold in two years, and PetroChina stands as the second most valuable company based on market cap, ahead of General Electric (NYSE:GE) and closing in on Exxon Mobil (NYSE:XOM). It shouldn't come as a surprise, then, that Buffett has recently sold his entire stake in PetroChina. As the man himself said, "Be greedy when others are fearful and fearful when others are greedy."

So while most homebuilders and mortgage lenders may still be overvalued, the strongest companies in the group will find themselves in a position to pick up market share with very little in the way of capital expenditures. Such situations can often lead to what Mohnish Pabrai refers to as "heads I win, tails I lose a little."

Favorable industry in a generally unfavorable environment
This area of investing should only be exploited after the most rigorous research, and investors must demand a higher margin of safety when looking to invest. These are companies usually operating in foreign countries or hostile environments.

As such, they are loaded with uncertainty, thereby exposing them to extreme price-to-value inefficiencies. More often that not, these businesses offer no value. Occasionally, an exception can be found.

Years ago, a small distributor and producer of spirits in Poland, Central European Distribution Corporation (NASDAQ:CEDC), caught my attention. The company held many exclusive rights to distribute beverages in Poland and possessed a solid balance sheet. At the time, CEDC was trading in the high teens, had a very appealing valuation in light of its growth, and was trading in the U.S markets and conforming to all rules and regulations. Still, it wasn't until many months later that I became comfortable with the operating environment in Poland, and even though the stock was near $20, the company had secured additional distribution rights and was proactively working with the government. Within a couple of years, I had a two-bagger.

A similar situation seems to be brewing with Harvest Natural Resources (NYSE:HNR), an oil company operating primarily out of Venezuela. The company has been operating in the country for some time, management knows what they are doing, and the company has access to drill some resource-rich land. On that note, I'll leave you to do your own analysis.

Nonetheless, you should never make an investment until you completely understand what you are doing, regardless of who owns shares in the company. If you don't understand it, move on -- it is detrimental to step outside of your circle of competence. Develop a sound search strategy, remember to stay within your circle of competence and not to worry about its size, and you'll do fine.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.