If you can rely on Wall Street's analyst community for anything, it's this: glancing in the rearview mirror at a company or industry's prospects, and then forecasting what they see into perpetuity. The upshot? Those who pay close attention to analyst sentiment -- and then invest accordingly -- are likely to be among the last to know what savvier types perceived, and profited from, much earlier.
Remember this past summer, when analysts were confidently predicting $200 barrels of oil? How 'bout the late 1990s and the early years of this decade, when the fabled "new economy" caused some analysts to endorse tech and telecom concerns -- not to mention Internet start-ups -- despite sky-high valuations that stretched not just the imagination, but any notion of credulity?
In fact, in 1999, one analyst famously set a $1,000 price target for Qualcomm (NASDAQ:QCOM).
Potshots
My point here isn't to take fish-in-a-barrel potshots at Wall Street -- or at least, that's not my whole point. Instead, I think that if you want to profit from the kind of analytical "insight" outlined above, it's often the smarter course of action to go against the groupthink grain. After all, when you go on a stock-shopping spree while everyone else is selling their shares, you increase your odds of being able to buy quality on the cheap.
That's particularly true these days, when many high-quality companies have seen their stock prices slashed as the Street's collective, ahem, wisdom prices in a permanent -- not temporary -- erosion of the global economy.
Indeed, I'd argue that the current doom-and-gloom mind-set on Wall Street and in the financial media explains, at least in part, the trajectory of such companies as Coca-Cola (NYSE:KO), PepsiCo (NYSE:PEP), 3M (NYSE:MMM), and Medtronic (NYSE:MDT).
Each of these fiscally strong firms boasts a tremendous track record of cranking out loads of free cash flow (FCF), and a history of delivering the goods for investors. Indeed, each cranked out returns that surpassed the S&P 500 for the 10 years that ended with November.
Illinois Tool Works (NYSE:ITW) and eBay (NASDAQ:EBAY) fit that profile as well. Yet for the 12 months that ended with Tuesday's market close, all of these fine companies have shed at least 25% of their value. 25%!
For contrarian types (like you?), this simply means that opportunities abound.
Against the wind
Make no mistake: Despite the market's recent upswing -- the Dow has climbed nicely from a late-November close of roughly 7,500 -- there may be plenty of volatility ahead.
But for patient, long-term types who prefer to focus on fundamentals (as opposed to, say, the daily direction of macroeconomic winds), this is a great time to be an investor -- provided you know where to look for the market's best opportunities.
For my money, that search should begin with a laser-like focus on firms that have fallen from favor for reasons that have nothing to do with their operating fundamentals. The companies that make your contenders list should boast healthy levels of free cash flow, as well as strong performance in key profitability metrics like return on equity (ROE) and return on assets (ROA). Moreover, management should have a clear track record of success when it comes to bringing home the proverbial bacon for its investors, too.
Not coincidentally, those are among the criteria we've put to work at the Fool's Ready-Made Millionaire real-money service. Our aim: To outperform the market over the next three to five years (and beyond). We've assembled a set-and-forget portfolio of companies and funds whose forward-looking prospects appear attractive indeed, particularly in light of the market's recent upheaval.
RMM is currently closed to newbies, but we'll be reopening the service in the new year. If you'd like to be notified when we do, click here and we'll serve up our 11-Minute Millionaire special report to tide you over until RMM's doors open up again. Click here to get started -- and stay tuned to your inbox. I have a hunch that 2009 is going to be a very exciting year!
Shannon Zimmerman runs point on the Fool's Ready-Made Millionaire service. At the time of publication, he didn't own any of the companies mentioned. Pepsi and 3M are Motley Fool Income Investor choices. Coca-Cola is an Inside Value pick. eBay is a Stock Advisor recommendation. You can check out the Fool's strict disclosure policy by clicking right here.
