We've finally recovered from the effects of the bubble. It's taken awhile, but I think the market has normalized.

Now, that might be hard to believe, with housing prices still falling nationwide, Freddie Mac (NYSE:FRE) being brought into the safe embrace of our wise politicians, and banks going under seemingly every week.

But that's because I'm not talking about the housing bubble. I'm talking about the Internet bubble that popped in 2000.

Discount days
Back in 1999, and for several years prior, the rule of thumb seemed to be that a solidly growing (say, 12%) large cap would trade at an earnings multiple of 30. The S&P 500's earnings multiple at the time was about 30.

Since then, though the economy's grown, the market has disintegrated. The valuations of many of the top businesses in the world have collapsed. Just look at this list:


1999 P/E Range

Current P/E

Cisco Systems (NASDAQ:CSCO)

72 - infinite





ExxonMobil (NYSE:XOM)



General Electric (NYSE:GE)



Pfizer (NYSE:PFE)



Procter & Gamble (NYSE:PG)



Sources: 1999 P/E range from Standard & Poor's; current P/Es from Yahoo! Finance.

Of course, any bozo knows that most stocks are cheaper now than they were at the height of the bubble. But it takes a special type of bozo to observe that these stocks aren't simply cheaper now than in 1999, but are cheaper than they've been at any point since the bursting of that bubble. A 37% year-to-date drop will do that.

What's more, by and large, these stocks aren't directly impacted by the credit crisis. GE has the most exposure; last year, about 35% of its revenues came from its financial subsidiaries. The rest don't get much exposure at all. All you get right now is excellent businesses trading at the lowest valuations this decade.

A full smorgasbord
And there are many more companies in similar positions, at or near decade-long valuation lows. If you want to bottom-fish, there's no need to buy the beaten-up financials. Though financials may look cheap, it's extremely difficult to accurately determine these companies' futures because of their high leverage and opaque balance sheets. Even extraordinary investors like Bill Miller, who beat the S&P 500 for 15 consecutive years, have been caught. Miller had been buying Freddie Mac all the way down and has been completely shredded.

So look beyond the financials to the stocks that have been hit by this panic but aren't in the eye of the storm. In many stocks, there's a serious margin of safety that also gives you the potential to make large profits.

The math is simple. If a stock is trading 35%-50% below its fair value, you can get a 50%-100% return just from that stock returning to its fair value. Even if your analysis proves optimistic, you can still come out ahead simply because you bought the stocks at a cheap enough price.

Don't lose much if you lose, but make piles when you win. It's a simple formula that's made many value investors wealthy. And it's particularly relevant today with the market so cheap.

The downside
That's not to say that because you're buying undervalued stocks, you're guaranteed a short-term profit. Things can go wrong, and the market has been incredibly volatile for the past couple of months. Right now, the market is pricing in a serious economic slowdown. If we do manage to hit a depression, then stocks that look cheap now could get cheaper. People are already comparing the decline in housing prices to the Great Depression. Though it's unlikely that we'll see a repeat of that terrible decade, there is some small chance that it will happen.

Or, the market could just stay irrational and undervalue stocks for a long time. The stock market was unrealistically optimistic for years during the Internet bubble. There's no reason why it couldn't also be unrealistically pessimistic for years, too. In 1980 -- just before it went on a huge multidecade bull run -- the S&P 500 had a trough earnings multiple below 7. These days, the S&P 500 is trading at a bit below 11 times 2009 earnings estimates -- still far above 7. And those estimates could end up being optimistic.

But really, if the main risks you're concerned about are a global financial apocalypse and the market plunging to valuation lows not seen for a quarter-century, then you're probably too worried about risk and not worried enough about making money.

The Foolish bottom line
Of course, you still do have to buy the right stocks. You should be looking for the companies not just with the biggest margins of safety and the highest growth rates, but also the most predictability. Many of these sorts of excellent companies are too expensive to buy when optimism abounds, so don't miss out on the chance to buy them while they're cheap.

And they really are cheap now. Our Inside Value team has found numerous stocks trading for substantially less than their intrinsic value, including some that we believe are trading for half of their fair value. You can read all our research with a free trial.

Fool contributor Richard Gibbons likes to imagine market apocalypses but has to return to reality occasionally. He does not have a position in any of the stocks discussed in this article. Pfizer and Dell are Inside Value picks. Pfizer is also an Income Investor selection. The Fool owns shares of Pfizer and has a disclosure policy that is rarely inebriated.