When it comes to investing, I'm a contrarian at heart. I'm also a cheapskate, generally more interested in stocks trading at low multiples than those with forecasted earnings-growth estimates that have catapulted investor expectations to infinity and beyond.
Don't get me wrong: If you're the Buzz Lightyear type, you should certainly check out the likes of Apple (NASDAQ:AAPL) and Cisco. Each sports a five-year earnings-growth forecast of 15% or higher -- and a price-to-earnings ratio (P/E) that surpasses the broader market's average. Genentech (NYSE:DNA) and CVS Caremark (NYSE:CVS) make that cut, too.
Deep discounts
If, however, you're mainly an investor of the value persuasion, here's good news: The likes of Goldman Sachs (NYSE:GS), Home Depot (NYSE:HD), and 3M (NYSE:MMM) are currently on sale, trading with P/Es below that of the S&P 500 and their own five-year averages.
While that kind of valuation-to-quality profile packs loads of appeal at first glance, there's usually more to multiples than meets the eye. Sometimes, even stocks that seem like stalwarts trade at depressed levels because, well, they're depressed.
Get happy!
Sometimes, of course, they don't. Fortunately, you don't have to be a financial pro to make big bucks by taking advantage of market inefficiencies. But that can be a full-time job on its own, so it's a good thing that some other smart folks out there already do it for a living -- successfully.
I'm talking about world-class money managers, the savvy types who run low-cost funds with battle-tested strategies and have delivered solid performances for investors year after year. These managers, not coincidentally, generally eat their own cooking, aligning their interests with shareholders' by investing their own moola in the funds they run.
When it comes to mutual fund data points, few will tell you more than that one.
And sleep well
Despite what you may have heard, you can beat the market while sleeping peacefully at night, with help from top-notch mutual funds. The secret is to focus like a laser beam on key criteria such as costs, historical performance during the current managers' tenure, and whether those managers put their money where their mouths are, so to speak.
These are precisely the kind of funds we seek out for members of the Fool's Champion Funds investing service. As an example, one of our picks is a large-cap value specialist whose portfolio also recently included eBay. Between 2000 and 2002 -- a period during which the S&P shed some 37.6% of its value -- this fund racked up a gain of more than 50%. Talk about investing with a safety net!
And speaking of safety nets, despite market volatility, 96% of our recommendations have made money for shareholders since we gave 'em the nod. As a group, they're beating the market by a healthy margin, too.
You're welcome to give the service a spin and see whether you can't put it to good use. I suspect it'll come in handy as you seek to fund (pun definitely intended) your financial future.
This article was originally published on Dec. 12, 2006. It has been updated.
Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service, and at the time of publication, he didn't own any of the securities mentioned above. eBay is a Stock Advisor recommendation. 3M and Home Depot are Inside Value recommendations. You can check out the Fool's strict disclosure policy by clicking right here.
