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The Best Opportunity This Decade

By Jim Mueller, CFA - Updated Nov 11, 2016 at 4:45PM

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The sky is falling! Or is that manna?

Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we're currently in). From the shortest one -- six months in 1980 -- to the two that spanned 1973-1975 and 1981-1982, we've muddled through and come out the other side. In between each, we've experienced, on average, almost five years of expansion.

So while we are in another recession right now and a big bear market, I'm excited!

Pardon me while I wipe my chin
First, we have a whole bunch of people running around in panic mode crying, "The sky is falling!" They don't want to hold stocks during a recession, so they're willing to sell them -- cheap.

Second, the news media fans the flames of panic with constant stories about weakening consumer spending and the specter of recession.

Third, we've got a handful of really hated companies. Specifically, I'm talking about the banks, thrifts, and builders that caused and are feeling the fallout from the mess we're in.

What does that add up to? Bargains.

Like a kid in a candy store ... and the candy's on sale
One option is one of the banks -- specifically Wells Fargo (NYSE:WFC). It's been feeling the effects of the credit crisis unwinding and shares are down some 21% from the highs reached last year.

There's also the investment bankers and brokerages. While E*Trade (NASDAQ:ETFC) is struggling, others, like JPMorgan Chase (NYSE:JPM) might be worth investing in. Heck, if it gets cheap enough, I'll even take a closer look. (Even iffy companies can be good investments if you get them at the right price.)

Then there are (still) the retailers, trying to survive declining same store sales and lessened consumer spending. This is where a strong balance sheet is helpful. American Eagle Outfitters (NYSE:AEO), for instance, has $344 million in cash and short term investments and no debt. As long as cash flow keeps coming, and it has so far, the company should survive to become great again.

Even some big-name companies have been dragged down. Pfizer (NYSE:PFE), maker of a lot of the drugs we take, for instance. The stock has been falling for most of the past year-and-a-half.

Finally, there are restaurants. Chipotle Mexican Grill, the burrito spin-off from McDonald's (NYSE:MCD), and Yum! Brands (NYSE:YUM), KFC's and Taco Bell's owner, are both off significantly. It's possible all that talk about lower consumer spending in 2008 has driven their prices down. But really, who cares about 2008? For my money, I'm more interested in companies I can buy today to own in 2013 -- so thanks for the bargains!

"When Buffett speaks, people listen."
Investing in the above industries might seem counterintuitive now, but Warren Buffett says au contraire:

To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records five, 10 and 20 years from now.

Bill Nygren, another great value investor, agrees. Looking at the current economic situation, he wrote, "What usually happens is that suffering industries begin to recover, the next crisis comes from somewhere least expected, and the cycle of creating new investment opportunities starts anew. We have no reason to believe it will be different this time."

These gentlemen know that investing today in areas that aren't well-liked will position your portfolio for the eventual end of this bear market. There will be another bull market. What we have now is the chance to grab some good companies while they're cheap.

So what are you going to do? Stop investing in stocks altogether, worried that things will be different this time? Or listen to master investors (not me -- Buffett and Nygren!) and look at some opportunities?

I know what I'm doing.

Finding value
If you'd like some help in figuring out if a beaten-down company is worth investing in, take a look at our Inside Value service. Philip Durell, Ron Gross, and team look in downtrodden areas of the market, just as Buffett and Nygren advise.

Since the newsletter's inception, their picks are beating the market; plus, you can see the stocks they're recommending today for free with a 30-day trial.

This article was first published on Feb. 12, 2008. It has been updated.

Jim Mueller owns shares of American Eagle, Chipotle Mexican Grill, Pfizer, and Yum! Brands, but no other company mentioned. The Motley Fool owns shares of American Eagle, Chipotle, and Pfizer. Pfizer is a choice at Inside Value and Income Investor, along with JPMorgan Chase for the latter. Chipotle is a recommendation of Rule Breakers and Motley Fool Hidden Gems. The Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$262.18 (1.12%) $2.90
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$122.13 (1.66%) $1.99
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$45.94 (1.52%) $0.69
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
YUM
$118.16 (0.38%) $0.45
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$50.11 (3.77%) $1.82
E*TRADE Financial Corporation Stock Quote
E*TRADE Financial Corporation
ETFC
American Eagle Outfitters, Inc. Stock Quote
American Eagle Outfitters, Inc.
AEO
$12.85 (3.13%) $0.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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