Famed mutual fund manager Bill Miller has often said that when it comes to investing, the "lowest average cost wins." What he means by that is simple: If you want your investments to do well, you need to do your heaviest buying when stocks are cheap.

Which, of course, makes sense. After all, if a stock currently trades at $20, the folks who bought at $18 would have seen a fairly solid 11% return, but investors who bought in at $5 have quadrupled their money. Clearly, those who bought low are doing much, much better than those who didn't.

Is it too late?
Unfortunately, with the overall market up more than 50% from its March lows, the easy money in this rebound has already been made. In the stock market, as in Pamplona, chasing after a bull run is a good way to get gored.

But there are still fortunes to be made -- opportunities to buy stocks on the cheap. You just need to look a bit deeper to find them.

After all, not every company has participated in that tremendous run-up. And of those that didn't, there are many that still trade at reasonable multiples of their expected earnings over the next 12 months. Take these, for instance:


Forward P/E Ratio

Change from 52-Week Low

Wal-Mart (NYSE:WMT)



Abbott Laboratories (NYSE:ABT)



McDonald's (NYSE:MCD)



Kroger (NYSE:KR)



McCormick (NYSE:MKC)



Omnicare (NYSE:OCR)



Teleflex (NYSE:TFX)



Fortunately, many of the companies that missed the boat are fundamentally solid.

You can still find bargains
In essence, these days, to follow Miller's advice and try to get the lowest average cost, you need to become a value investor. Instead of following the herd, you need to find individual stocks that are still, even after the overall market's tremendous rise, worth more than the market thinks they are.

Of course, finding truly bargain-priced stocks requires a bit more than simply screening for low forward P/E ratios. For a company to really be value-priced, it needs to have the capability to achieve those projected earnings. There are no hard-and-fast rules, but if a company has two key characteristics going for it, you stack the odds in your favor:

  • A strong balance sheet: With a solid cash position, limited debt, and other assets that can be tapped if needed, a company has the flexibility to change its strategy as conditions change. That increases the likelihood that the company will be able to adjust to an ever-changing economic environment and still reach its goals.
  • Solid cash flows: On the surface, earnings seem nice, but no company can pay the bills without cold, hard cash. To the extent that a company can convert its earnings into actual cash in its pockets, it shows that its business is strong enough to entice its customers to part with their own cash. Especially in a credit-constrained environment, that cash-generation ability is essential for success.

With a value-focused strategy that considers not only what you're paying, but also what you're getting for your money, you can get the best of both worlds. You can both protect yourself from the eventual reversal of a frothy bull market and have a chance at following Miller's strategy of getting the lowest average price.

It's a stock picker's market
Stocks like that are nowhere near as easy to find as they were near the market bottom, but at Motley Fool Inside Value, we're still digging them up. And as long as we can buy great companies at reasonable prices, we'll do so. After all, if you want to win via Miller's lowest-average-cost method, you've got to be willing to buy solid companies when their shares are down.

If you don't want to be caught by the business end of a charging bull market, you need to concentrate your investing dollars on those individual companies that are still bargain-priced.

The easy money from the early bull-market run has come and gone, but if you still want a shot at building your fortune, hunting for values is your best chance for success. At Inside Value, it's the strategy we follow every day. To see two ideas we're excited about right now, click here to get a special free report.

At the time of publication, Fool contributor Chuck Saletta owned shares of Omnicare, and his wife owned shares of Kroger. Omnicare, Teleflex, and Wal-Mart are Inside Value selections. McCormick is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.