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 get hunting
There are six places I hunt for value for my Motley Fool Inside Value subscribers. They are:

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

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

Today's lesson
Cyclical companies have inconsistent earnings, and their stock charts can resemble a roller coaster. The key here, however, is that the cycle is predictable, whether you're hunting oil, chemicals, automobiles, semiconductors, pharmaceuticals, or even fashion firms. It's also best to stick with industry leaders with visionary management and strong balance sheets.

Abercrombie & Fitch (NYSE:ANF) is a classic consumer cyclical. It battles seasonal sales every quarter -- with more than 60% of total sales during the third and fourth "fall" quarters -- as well as annual fashion trends. The company hit a particularly hard stretch at the beginning of 2000, when the brand seemed to be going out of style.

But CEO Michael Jeffries wouldn't let that happen. Jeffries has been at the helm of Abercrombie & Fitch since 1992 -- an impressive tenure when you consider that the average CEO tenure has fallen to approximately five years. Just as he revitalized the brand in the early 1990s, Jeffries kept raising prices to keep the brand exclusive and "cool." And it worked. The stock has rebounded -- up more than 500% in just five years. Of course, Abercrombie's lack of any debt on the balance sheet gave Jeffries the flexibility to manage the company to success. But that's what we look for when we hunt for down cyclicals with the potential for huge returns: great management and sterling balance sheets.

Foolish final thoughts
What other companies suffer from cyclicality? Chances are you've heard of a great many of them: ExxonMobil (NYSE:XOM), Caterpillar (NYSE:CAT), Ford (NYSE:F), and Coach (NYSE:COH), to name a few. These are the kinds of companies that -- with patience -- can periodically be had at bargain prices.

As a value investor, I wait for superior companies to go on sale at a deep discount. If you'd like 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.

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 does not own shares of any company mentioned in this article.The Motley Fool has adisclosure policy.