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The Best Investment Values in a Decade

By Todd Wenning - Updated Nov 11, 2016 at 4:52PM

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Now's the time to swing hard.

In The Science of Hitting, baseball Hall of Famer Ted Williams revealed his approach to being a great hitter. And when a guy with a lifetime batting average of .344 and 521 home runs wants to tell you his secrets, it pays to listen.

Williams' approach was amazingly simple:

  • Get a good ball to hit.
  • Proper thinking.
  • Be quick with the bat.

To determine what makes "a good ball," Williams dissected the location of various pitches to figure out which ones gave him the best opportunity to get a hit. For example, the best he could hope to hit with low and away pitches was a meager .230 -- while pitches straight down the middle gave him the chance to hit .400 (which he did in 1941).

Essentially, the pitches he chose to swing at could either send him down to the minors -- or vault him into the Hall of Fame.

And the same is true for you.

Get a good ball to hit
As investors, the difference between beating and lagging the market over the long run comes down to:

  • Finding great companies at great prices.
  • Doing your homework.
  • Making timely decisions.

In other words, swinging at the investments that are the most likely to bring you big returns.

It seems obvious. But all too often, we ignore this simple code and swing at overvalued stocks, reducing our chances of market-beating performance.

However, when the market is panicking, we're presented with better opportunities to hit home runs.

Proper thinking
Tom and David Gardner follow the same philosophy -- seek good companies at great prices -- and it has paid off.

From April 2002 to May 2003, for example, they picked 26 stocks for Motley Fool Stock Advisor subscribers. Fully 20 of them now have positive returns, even after recent market volatility, including big winners such as Marvel Entertainment -- up 770%.

All 20 were already great companies -- but the dreary bear market environment allowed Tom and David to swing at these fat pitches and pick up great businesses at great prices.

Making timely decisions
These days, we're presented with what Ron Muhlenkamp a few months ago called "the best investment values we've seen in a decade." Obviously, the market has since fallen further since he made this comment, but Muhlenkamp more recently responded by noting:

We've been saying for some time that we see good / great companies selling at cheap prices, only to see the prices get cheaper. If / as we see signs that [the Treasury's bailout plan] is working, we will be putting our cash to work in some of these companies.

In other words, we're getting better pitches to swing at than we were in previous years. Be ready to pounce on great values as the dust settles.

One of the screens that Muhlenkamp uses to determine value opportunities looks for companies generating return-on-equity figures above 15%, and price-to-earnings ratios below the market average (currently 16 times).

Here's a sample list:

Company

P/E Ratio

ROE

Corning (NYSE:GLW)

2.4

52%

Wyeth (NYSE:WYE)

10.4

24%

United Technologies (NYSE:UTX)

10.3

22%

Norfolk Southern (NYSE:NSC)

10.7

17%

Stryker (NYSE:SYK)

14.2

21%

Raytheon (NYSE:RTN)

11.3

15%

Oracle (NASDAQ:ORCL)

14.8

28%

Source: Capital IQ, a division of Standard & Poor's.

Using this measure, at least, we can see that there are plenty of good companies out there trading below the market's average P/E. That's reason enough for further research.

Foolish bottom line
We live in interesting market times. It can be a bit nerve-wracking to put money to work when others are pulling it out -- but those exact types of markets offer the best chance to build strong long-term gains.

If you'd like help finding great companies trading at great prices, a free 30-day trial to Stock Advisor is yours by clicking here. Tom and David have a pretty good track record in bad markets, to say the least. Since 2002, their picks have outperformed the market by 27 percentage points on average. There's no obligation to subscribe, so what do you have to lose?

This article was originally published on July 21, 2008. It has been updated.

Todd Wenning wishes he could have hit like Teddy Ballgame just one time. He does not own shares of any company mentioned. The Fool owns shares of Stryker. The Fool's disclosure policy is legendary.

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Stocks Mentioned

Norfolk Southern Corporation Stock Quote
Norfolk Southern Corporation
NSC
$257.06 (-1.83%) $-4.78
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$96.13 (1.18%) $1.12
Oracle Corporation Stock Quote
Oracle Corporation
ORCL
$79.11 (-0.05%) $0.04
Stryker Corporation Stock Quote
Stryker Corporation
SYK
$224.57 (0.65%) $1.45
Corning Incorporated Stock Quote
Corning Incorporated
GLW
$37.18 (-0.96%) $0.36
Raytheon Company Stock Quote
Raytheon Company
RTN

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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