Fear, Loathing, and Opportunity

As the venerable Stanford Ph.D. economist and market sage A. Gary Schilling said, "Find an important, nonconsensus, and long-term investment theme -- and then stick with it."

Today, fear, uncertainty, and loathing linger for more than one breed of stock. But that's understandable: The housing bubble is bursting, oil sits above $90/barrel, inflation concerns hang on, and a credit crunch is looming.

Of course, as long-term, business-oriented investors, this is the time we start looking to buy.

The markets aren't the same animal they've always been
With the advent of the Internet and the legions of sell-side analysts, it's almost impossible to find information that's not already reflected in securities' prices. It's unrealistic -- unless you're willing to look at things a bit differently.

You see, the folks with the consensus information are the same ones setting one-year price targets on stocks. We're never going to trump these folks on an information basis; the factors influencing securities' prices, across the near term, are most assuredly better known to the Wall Street establishment.

We can, however, profit by thinking about the time frame they're neglecting -- two, three, and five years out. Now is the time to think like a chess grand master: not one or two moves out, but across the span of the match.

What to look for
To do this effectively, start thinking about industries that serve critical societal needs but are temporarily suffering as the economy does its inevitable wax and wane. These are firms that stand to benefit from the aging of baby boomers, burgeoning wealth of developing nations, and ongoing infrastructure development worldwide.

And, while a crisis of investor confidence could cause these stocks to have a tough 12 months, the trends I'm talking about are 10-, 20-, or even 30-year phenomena.

Just ask Lakshmi Mittal, CEO of Arcelor Mittal (NYSE:MT). Mittal recognized the very compelling long-term dynamics at work in the steel industry a few years back and set to work buying up near-defunct mills at fire-sale prices across the globe. Today, Mittal presides over a steel empire.

What else will help
In order to be a successful contrarian (and bet against the prevailing winds), it pays to acknowledge that when the winds are blowing, it's not always overreaction, short-sightedness, or stupidity. Real money is leaving stage left, at least for the time being.

For that very reason, it pays to seek out well-capitalized companies. These are the ones that will be doing the consolidating, scooping up business as smaller players perish. They're also the ones that'll comfortably weather the storm, whatever the magnitude.

The automotive industry is a perfect example. Although it's in a business generally characterized by high fixed costs, notorious cyclicality, and horrible industry dynamics, Toyota's (NYSE:TM) fanatical focus on manufacturing efficiency and its rock-solid balance sheet make it as close to a lock as you'll get.

What seals the deal
Finally, we're not seeking companies whose extraordinary profit margins are transitory. The best investments are borne of companies whose profit streams are predictable and sustainable.

That's not to say they will not experience some cyclicality. But across the long term, these companies earn consistently high returns and continuously grow because of dominant franchises, craft expertise, or model supply-chain efficiency. These are companies where you see a certain sense of inevitability.

Take Canon (NYSE:CAJ), for example. Sixty-five percent of profits came from printers, copy machines, and the like in the past fiscal year. Purchases are obviously exposed to cyclicality in business spending. But because of recurring purchase elements (toner, ink cartridges, etc.), the company secures a significant chunk of future revenues.

Where to now?
Given recent events, it's easy to see an industry theme appropriate for today's market: financials. It's hard to think that five years out, financials won't look ridiculously cheap at today's prices.

Yes, things might hurt in the near term. But a lot of wide-moat, financially sound powerhouses have been knocked down amid the panic. They aren't going anywhere in the long term. A few that might hold possibility:

I'm not suggesting that these stocks are a guaranteed bounce once housing and credit concerns subside. These banks have exposure to subprime and housing, but their profits are much less anchored to U.S. housing than their domestic counterparts. And they've been on the receiving end of a drubbing amid broader market panic.

Such opportunities are the sort that business-focused investors seek and relish. It's how we like to invest at Motley Fool Inside Value, and the strategy has helped us profit from quite a few market overreactions. To see the names we're recommending today, click here to join the service free for 30 days. There is no obligation to subscribe.

Michael Olsen does not own shares of any companies mentioned. Allied Irish Banks is a Motley Fool Global Gains recommendation. The Motley Fool has a disclosure policy.