"Panic" might be too weak a word for what we've been going through. It's not just the way the stock market has been affected -- the far larger lending market seized up as well. Banks don't want to lend to each other, much less those of us out here in the real world, and the bond markets remain off-limits to all but the strongest of borrowers.

And all of that has left everyone terrified. The long-term future simply doesn't matter all that much to a company that risks oblivion in the next week if it can't roll over its maturing debt or cover tomorrow's margin call.

The companies hit hardest by this mess have been the ones that were built on the presumption of easy, cheap, and unlimited credit. Homebuilders like Toll Brothers (NYSE:TOL) are in a world of hurt, and even the strongest automobile titans like Honda (NYSE:HMC) are feeling the impact of the credit crunch. But it was investment banks and financial institutions -- the largest and fiercest players on Wall Street -- that were literally ground zero for this implosion.

The list of companies brought down by the implosion -- Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac -- includes some of the most notable names on Wall Street. The list of companies struggling to survive the economic downturn grows longer by the day. And that's creating a once-in-a-lifetime investing opportunity -- for you.

It's your turn
There are unbelievable bargains available now, the likes of which we haven't seen since the days of Benjamin Graham. Under less unusual circumstances, Wall Street's financial wizards would be leveraging themselves to the hilt to take advantage of the market's current conditions. But with their funds cut off, redeemed, or diverted into mere survival, they're forced to sit on the sidelines, rendered completely unable to act.

That's where you come in. As long as you have the patience to wait out the volatility, you can buy those very same bargains (without the leverage) and be richly rewarded when things return to normal.

The country, the stock market, and the strongest companies of the era survived the Great Depression. We'll get through this mess, too. Much the way Benjamin Graham and his protégé Warren Buffett did after past catastrophes, the superinvestors of this generation will make their fortunes buying on the heels of this one.

Where to play
Even if you don't aspire to be the next Graham or Buffett (and don't have $5 billion sitting around with which to invest in a struggling company), there are plenty of bargains available to you right now.

But be careful out there -- not every company that has fallen is legitimately cheap. We're in the throes of a global economic rout, after all, and many companies deserve their slashed share prices.

Those whose prices have dropped as a result of forced selling or general market malaise, on the other hand, are the most likely to reward their shareholders for holding on through this mess. They typically have

  • Strong balance sheets,
  • Reasonable or cheap valuations, and
  • Moats protecting their core businesses.

Companies like these, for instance:



Value proposition

Valero (NYSE:VLO)

Leading refiner of heavy, sour crude oil that other refiners shun as being too difficult.

Trading below book value, forward P/E below 8.

Boeing (NYSE:BA)

One of only a small handful of commercial airline manufacturers, also has a decent military business

Forward P/E below 8, total debt load less than 1/5 of revenue

Eli Lilly (NYSE:LLY)

Temporary monopoly on its branded pharmaceuticals, decent pipeline of new potential products

Forward P/E below 10, more cash on hand than total debt


Dominant player in a business that depends heavily on a network effect. Also owns PayPal, a leading online payment service provider

Forward P/E below 10, no debt, $3.6 billion in cash on hand

Archer Daniels Midland

Leading biodiesel & ethanol fuel producer, broad range of products helps it navigate commodity boom/bust cycles

Forward P/E below 10, total debt less than 1/9 of revenue

Although these companies are likely to be affected by the U.S.'s recently declared year-old recession and the general tightening of consumer credit, their basic businesses are solid. Solid businesses, clean balance sheets, and cheap prices compared to intrinsic value mean these are the types of opportunities you should be taking advantage of right now -- while you still can.

This won't last forever
In ordinary times, companies this strong would not be available at such attractive prices. These deals are available only because the global financial meltdown has knocked out so very many of the institutional investors who would ordinarily bid these companies up much higher.

If you want to pay bargain-basement prices for some of the strongest businesses around, this is when you should pounce. It's not easy to buy when everyone is panicking, but it's precisely how generations of successful value investors have made their fortunes.

At Motley Fool Inside Value, we're taking advantage of the brief window we've been given -- and we're excited to buy companies like these at such reasonable prices. You can get a free, 30-day trial, with all of our recommendations but no obligation to subscribe, just by clicking here.

This article was originally published on Dec. 3, 2008. It has been updated.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta did not own shares of any company mentioned in this article, but his wife owned shares of Valero. eBay is a Motley Fool Stock Advisor recommendation. Eli Lilly is a former Income Investor pick. You don't need to cross a moat to see the Fool's disclosure policy.