Value investing is the only strategy proven to beat the market over the long term. Consider: If you'd invested $1,000 in value stocks in 1968, you would now hold $35,000 -- compared with $18,000 if you chose growth stocks or a mere $8,500 if you'd picked the S&P 500. And if you don't think that's true, just look at how the value ethos has run roughshod over the market. From Warren Buffett and Charlie Munger at Berkshire Hathaway to Bill Ruane at Sequoia Fund to Rick Guerin at Pacific Partners, the disciples of Graham and Dodd have proved time and time again that hunting for value works in every kind of market.

Let's go hunting
There are six places I hunt for value for my Motley FoolInside Value subscribers. They are:

  1. Wounded elephants
  2. Cyclicals
  3. Former glamour stocks
  4. Fallen angels
  5. Bankruptcy survivors
  6. Stealth stocks

Great names, to be sure. And they reap great rewards as well.

Today's lesson
Wounded elephants are industry stalwarts that are temporarily out of favor for a less-than-rational reason: missed quarterly earnings, a brush with litigation, a failed product, or anything that causes impatient institutional investors to dump the stock. Like a big game hunter, I put these companies on my watch list and wait patiently for them to fall into my value sights before I bag them for my portfolio. If you're like me, you're salivating at this point because you know what we've found: a superior company on sale.

McDonald's (NYSE:MCD) was once a "one-decision" stock. Its business and prospects were so superior that investors were advised to hold the company forever. But from June 2002 to March 2003, the stock cratered -- closing as low as $11.97 per share -- amid fears of competition and bad beef. This was the quintessential wounded elephant -- a superior company on sale. Like any superior, McDonald's rebounded, rewarding investors with a 170% return in two short years.

Foolish final thoughts
What companies are on your wish list? I'll tell you that mine includes Wrigley (NYSE:WWY), AIG (NYSE:AIG), GlaxoSmithKline (NYSE:GSK), and ConocoPhillips (NYSE:COP) -- all superior companies that the market may still love too much (and, accordingly, may be overvalued at the moment). Two more companies from the list -- Unilever (NYSE:UN) and Tribune (NYSE:TRB) -- may be closer to value territory.

Once I have my list, I wait for those companies to go on sale at a deep discount. If you want to join me in the hunt, consider a 30-day free trial to my Inside Value newsletter. We hunt down two market-beating values every month and are helping subscribers beat the market by nearly eight percentage points. A trial includes access to everything we've ever published. Click here to learn more.

Just ask the masters: Value works. Happy hunting.

For related Foolishness:

This is a revised version of "Hunting for Value," which was originally published on Nov. 18, 2004.

Philip Durell is the analyst for the Motley Fool Inside Value newsletter. He owns shares of GlaxoSmithKline, but no other companies mentioned. Unilever is a Motley Fool Income Investor recommendation. The Motley Fool has adisclosure policy.