Of all the tidbits of insight I've heard over these few crazy months, the most telling came from an investor on CNBC last fall who, being completely serious, advised, "There're only two positions to be in right now: cash, and fetal."

I get it. It's bad out there. Many companies that overleveraged their balance sheets are permanently impaired and will likely never rebound -- companies like Citigroup (NYSE:C) and AIG (NYSE:AIG) come to mind. We had an unprecedented boom; now we're in the middle of an unprecedented bust.

But history tells us time and time again that market panics and forced sell-offs indiscriminately throw the good out with the bad. Amid the frenzy over financial markets and the "sell-now-ask-questions-later" mood of global investors, opportunities are being created for bargain-hunting investors like we haven't seen in decades.

Using the wisdom of our 130,000-member-strong CAPS community, I've come across what could be one of those bargain opportunities: Alcoa (NYSE:AA).  

CAPS Rating (5 stars max.)

****

1-Year Performance

(86%)

Recent share price

$5.48

2009 EPS estimates

($0.64)

Trailing-12-Month EPS

($0.09)

Market cap

$4.39 billion

Current ratio

1.1x

Fools bullish on Alcoa are also bullish on:

General Electric (NYSE:GE),
Johnson & Johnson (NYSE:JNJ)

Fools bearish on Alcoa are also bearish on:

Ford (NYSE:F),
General Motors (NYSE:GM)

Data from Motley Fool CAPS and Capital IQ, a division of Standard & Poor's, as of March 17.

Am I nuts to think there's value in Alcoa? Perhaps. Things are about as bad as it gets right now. Its dividend was just slashed, capital expenditures are being hacked down, and the company is forecasting losses.

But all of the pain Alcoa is currently undergoing can be appropriately discounted by investors who acknowledge two points:

  • This is a notoriously cyclical industry. Business goes up, and then it goes down. Since we're quite obviously deep in the "down" phase of the cycle right now, ask yourself what phase comes next.
  • With shares down 86% in the past year, how much of the current downturn do you suppose is already reflected in today's share price? If you're like me and you come up with an answer of close to "all of it," I think you're on the right path.

CAPS member nau99 seems to agree, recently writing, "Long-term this company will be a powerhouse when the economy rebounds." CAPS player scoylesays shares similar feelings, writing, "Very cheap stock will surge when sector shows signs of recovery."

No one denies the metals industry will be a basket case for a while, but that's how cyclical companies work. Rather than focusing on one quarter or one year's earnings, a more appropriate way to value these companies is looking at average earnings over a long period of time. This way, the booms and busts are smoothed out -- however imperfectly -- to give a long-term view of what the business is worth.

Going back to 1990 and adjusted for shares outstanding, Alcoa's net income per share has averaged $0.95 per year -- the equivalent of just six times earnings at today's price. We're obviously in a downturn more severe than anything we've been in since 1990, but that figure gives a more truthful indication of what this business is worth than simply looking at today's environment and extrapolating it into infinity.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Johnson & Johnson is a Motley Fool Income Investor pick. The Motley Fool is investors writing for investors.