3 Ridiculously Cheap, High-Quality Companies

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

I get it. Even with the recent rally, it's ugly out there. Many companies that overleveraged their balance sheets are permanently impaired and will likely never fully rebound. (AIG (NYSE:AIG) comes to mind.) We had an unprecedented boom; now we're in the middle of an unprecedented bust. That's how markets work.

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

Using the wisdom of our 135,000-member-strong CAPS community, I've hunted down a few dirt cheap, high-quality companies. Have a look:

Data from Yahoo! Finance and Motley Fool CAPS.

Let's break down the bullish argument for each one.

Cheap, unappreciated, unnoticed
FreightCar America makes railcars to haul coal and other commodities. This tremendously cyclical industry is usually in an epic boom or a debilitating bust. Replacing railcars just isn't the kind of industry that provides year-by-year stability. Profits in 2006, for example, topped $10 per share, which looks insane next to today's $16 share price. But that was the peak of the cyclical boom -- 2009 earnings expectations currently call for roughly $0.41 per share.

Knowing how cyclical this business is, management has amassed a war chest of cash totaling $7.66 per share, or nearly half of its market cap. And the company has no debt at all. Not only does this hoard provide security during the lean years, but it also plays a large role in the valuation process. Back out the cash, and you get shares trading for $9 -- less than it earned in 2006. If you're patient enough to wait for the next business cycle to juice earnings, good things could happen to this stock.

Have some faith
Add WellPoint to your list of insurers trading at scant valuations, all because of fears that government may dip its toes into health insurance. I won't downplay the wrath Uncle Sam could exert on insurers like WellPoint, UnitedHealth (NYSE:UNH), and Aetna (NYSE:AET). Washington has proven it can shake things up when it feels the need.

Still, sensible assumptions of what a remodeled health-care industry might look like should invariably include the participation of health giants like WellPoint in some profitable, capitalistic way. The industry isn't going to evaporate. Factor in the slim valuations at which these stocks are trading, and it's no wonder many seasoned value investors are digging deep in this industry. As CAPS member aparker385 wrote last summer:

The good news for [WellPoint] is that whatever the government comes up with will not change the fact that medical costs keep rising, that people still want coverage, and that [WellPoint] and the other large insurers are best equipped to provide that coverage. At the end of the day, the large insurance companies will benefit in some capacity from any increase in government programs ("more spending on health care"). If any type of price war or competition continues, the biggest players are best positioned to fight. Almost inevitably, [WellPoint] will come out victorious in any competitive battle that takes places.

Death to the brew?
You'd be forgiven for hating Starbucks. Paying $4 for a frothy, sugary brew is the epitome of why this country is in an overconsumption hangover. Throw in competition from McDonald's (NYSE:MCD), and it's all but assured that the company's gangbuster growth days are over.

But my interest in Starbucks perked up when I came to terms with two points:

• I rag on how absurd its business model is, yet I frequently visit its stores, waiting in line to pay through the nose day after day. I can't be the only one guilty of this.
• Everyone hates the stock. Bad news is priced in. After falling for three years straight, shares will eventually bottom

That's why my Starbucks feelings echo those of CAPS member supernaut2009:

Although I do not see [Starbucks] as the growth stock it once was, I just cannot see this company dissolving into irrelevancy. Is the American addiction to gourmet coffees over? I don't think so. Perhaps just on hiatus thanks to the recession. 

Your turn to chime in
Have your own take on any of these companies? More than 135,000 investors use CAPS to share ideas and swap opinions. Click here to check it out and speak your mind. It's 100% free to participate.

For related Foolishness:                                                                        

• This Rally Is Ridiculous
• Buffett's Wrong: 5 Companies That Beat His
• 3 Bargain Stocks for This Market