"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? Despite the recent rally, there's no shortage of fear in plenty of industries. Fortunately, that fear creates opportunities for investors patient and diligent enough to search for great stocks that have unfairly suffered from the market's latest meltdown.

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 the year ahead.
  • Terrible performance over the past 52 weeks. Yes, almost every stock meets this condition, but I'm looking for the bargain opportunities. Not stocks that have simply fallen in price, but stocks that are cheap.

Have a look at some of the results:

Company

52-Week 
Price Change

Recent Price

Forward P/E Ratio

Fortune Brands (NYSE:FO)

(26%)

$43.33

15.6

Johnson & Johnson (NYSE:JNJ)

(12%)

$60.77

12.4

Molina Healthcare (NYSE:MOH)

(36%)

$20.56

8.9

Valero Energy (NYSE:VLO)

(40%)

$19.82

10.8

Waste Management (NYSE:WM)

(10%)

$29.84

13.8

Data from Motley Fool CAPS and Yahoo! Finance, as of Sept. 23, 2009.

None of these are 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.

A closer look at Molina Healthcare
Health care is probably the most popular industry these days. Not since the early '90s has the industry been on the brink of something this big, as regulation -- or its failure -- looms.

Most investment chatter has focused on large caps such as UnitedHealth (NYSE:UNH) and WellPoint (NYSE:WLP). But, as is usually the case, investors may find the biggest opportunities in tiny companies that most people have never heard of. Molina Healthcare might be one of them.

Just recently, CAPS member AllStarPortfolio put together a detailed analysis of Molina Healthcare that caught my attention. Impressed, I thought I'd devote this article to the pitch.

Without further ado:

Molina has been run as a profitable company for years now with a huge cash reserve of 432 million dollars once you factor out the debt. Compare that to the 529 million dollar market cap and you can see a company that is producing 55 million dollars in profits a year trading at just 97 million dollars over its current cash value. That is downright dirty cheap right there! You also have a company in Molina that has been run by its founders since its inception in 1980. Have I ever mentioned how much I appreciate management loyalty, especially in the health care business?

A great company at a great price. But AllStarPortfolio's attention isn't necessarily drawn to Molina's strengths, but to its weakness, and the potential catalyst that could come from that weakness:

Molina has always been particularly poor when it comes to the medical cost ratio as was evidenced by their 86.4% cost percentage in their most recent 10-Q. Competitor Wellpoint for instance runs a cost ratio closer to 79% with the average in the industry being closer to 80-82%. This simply means that Molina has to try even harder with what it has to turn a profit ...

Wellpoint also has a massive presence in California, known for their Blue Cross and Blue Shield health plans. They operate out of 46 states and their medical cost ratio is among the best in the industry. More importantly, [WellPoint] is also incredibly smart with their money, and sitting on such a large pile of cash (8.2 billion after debt), they would see tremendous upside in acquiring Molina.

The primary synergy would be felt if either California or even the US government enacted a universal health care plan (sort of like what Obama is trying to get through right now). Molina would be benefited greatly by any sort of universal plan because it would reduce their high medical ratios by bringing in more potential clients and laws in the plan which would require certain levels of medical spending on patients wouldn't apply to [Molina] since their patient care costs are already particularly high. Wellpoint on the other hand would be hurt by higher medical cost requirements and would benefit by picking up the already profitable, high in cash Molina, if anything just for their California health care members.

Consolidation is an invariable outcome of an industry's upheaval. For Molina Healthcare, its relative low valuation and market niche could provide a nice fit for a larger player such as WellPoint. Yet even if a deal never happens, the same low valuation is a catalyst to create shareholder value in itself.

You take it from here
Have your own take on Molina Healthcare? More than 140,000 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 owns shares of Johnson & Johnson. Fortune Brands and UnitedHealth are Motley Fool Stock Advisor picks. UnitedHealth and WellPoint are Inside Value recommendations. Johnson & Johnson is an Income Investor selection. The Fool owns shares of UnitedHealth, and has a disclosure policy.