There are plenty of reasons why you should pay attention to Seth Klarman. His hedge fund, The Baupost Group, has had only one losing year in its quarter-century of existence. The fund's compound annual return over that time frame is close to 20%, turning every $10,000 investment into $940,000.

How did Klarman do it? Simple, really. He buys quality companies that have been irrationally beaten down: "My firm's approach is to seek situations where there is urgent, panicked or mindless selling."

To search for companies that might fit Seth Klarman's investing style, I turned to our nifty CAPS screening tool. Below are seven companies that have lost more than 20% of their value over the last 12 months.

These stocks also have:

  • Earnings-per-share growth in excess of 10% per year over the last three years.
  • Top four- or five-star ratings from our CAPS community.

Remember, since we launched CAPS in late 2006, five-star companies outperformed the S&P 500 index by an average of 12.2 points, annualized. Four-star companies beat by 7.2 points.


CAPS Rating (out of 5)

Mkt. Cap (in millions)

3-Year EPS Growth

52-Week Price Change

Cemex (NYSE:CX)





Focus Media Holding (NASDAQ:FMCN)





Middleby (NASDAQ:MIDD)










Tata Motors (NYSE:TTM)





Texas Instruments (NYSE:TXN)





UnitedHealth Group (NYSE:UNH)





Source: Motley Fool CAPS as of Aug. 19, 2008.

The recent credit and housing troubles have most investors in a panicked selling mood. Even the stocks of great companies have been crushed, and they're probably trading at far less than their true worth. That's precisely when an investor like Seth Klarman gets busy. So should you.

Looking for more beaten-down bargains? Come hang out with us on Motley Fool CAPS. Let our 115,000-strong (and counting) CAPS community help you make better stock selections.

Further Foolishness:

Tata Motors, Focus Media, Cemex are Global Gains picks. Middleby is a Motley Fool Hidden Gems recommendation. UnitedHealth Group is an Inside Value selection. Focus Media is a Rule Breakers pick. UnitedHealth, NVIDIA, and Cemex are Stock Advisor picks. The Fool owns shares of Cemex. Try any of these Foolish newsletter services free for 30 days.

Matthew Argersinger doesn't own shares of any companies mentioned. The Fool has a disclosure policy.