Long-Term Stocks

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Long-Term Stocks: Three “Best of Breed” Companies On Sale Right Now

by Floyd G. Brown, Advisory Panelist, Investment U
Monday, February 25, 2008: Issue #767

Last week, I attended another one of the excellent meetings hosted by The Oxford Club, this time at the gorgeous Broadmoor resort in Colorado Springs. If you have never attended one of these convocations, you are missing a great opportunity. I hear some of the most powerful and insightful investment advice at these meetings.

At dinner the other night, for example, we had a spirited discussion about market timing. Several listeners to our semi-debate couldn’t believe it when I said I enjoy the current market turmoil… “How can you enjoy it when stocks are up and down in such a volatile way?” one gentleman asked.

I simply responded by saying, “As a contrarian, I love to buy other people’s mistakes, fear and pain.” This can lead to obscene profits if you only have the discipline to stay invested and buy more equities in times of uncertainty. Just ask Warren Buffett. As an investor, you want to buy when the market is oversold. And I believe right now is a great time to add long-term stocks to your portfolio.

Here’s why, plus three companies I think will prosper…

“America Is Now On Sale”

Horacio Márquez, contributing editor to The Money Map Report, came up to me in the lobby during a break. In his melodic Argentinean accent, he whispered, “Floyd, if only people realized America is now on sale, they would use this opportunity to close their eyes and just buy. If they did that, they would love us in a year.”

This past month, I have been almost giddy with excitement as some of the best companies in the world are selling at deep discounts. Tuning out the noise around us reveals the opportunities the credit crunch has created – the ability to buy long-term stocks from quality companies at historically low prices.

Buying Long-Term Stocks During The Fear Festivals

Looking at the chart below of the NYSE composite 12 months after Black Monday in 1987, did you have the courage to buy long-term stocks after that fear festival?

Long-Term Stocks After Black Monday 1987

Did you have the courage to buy after the collapse of Asia’s currencies in 1997?

Long-term stocks after '97 Asia currency collapse

Did you have the courage to buy stocks after the collapse and bankruptcy of WorldCom in 2002?

Long-term stocks after collapse of WorldCom in '02

I feel the same way about this crisis as I did about the three mentioned above, and as I did during the days after 9/11, or the days after the first gulf war in 1991.Tune Out The Nonsense & Buy Long-Term Stocks

When the market gets crazy and fearful, you want to be able to tune out the nonsense and pick quality long-term stocks. You don’t want to be seduced by the little guy inside your mind who tells you that you can time the market. He is a liar.

After the most exhaustive study on market timing, an NYU researcher concluded: “Its appeal to investors, notwithstanding, market timing remains an elusive dream for most. Looking back at market history, there have been far fewer successful market timers than successful stock selectors, and it is not clear whether even the few successes that can be attributed to market timing are more attributable to luck.”

So go ahead, pick some stocks. Three I especially like are:

AIG (NYSE: AIG)
Goldman Sachs (NYSE: GS)
And American Eagle Outfitters (NYSE: AEO)

All three are the best in their businesses and selling at unbelievably cheap prices right now.

FloydFloyd Brown, a regular contributor to Investment U and The Oxford Club, began his highly successful investing career while still in high school… and made his first million before turning 30. For substantial long-term gains, here’s why Floyd believes buying stock in Microsoft is a no-brainer right now.

Today’s Investment U Crib Sheet

Ben Graham’s Intelligent Investor is regarded as the definitive book on value investing. In the revised edition, editor Jason Zweig comments: “Unlike most people, many of the best professional investors first get interested in a company when its share price goes down, not up.” To be sure, value investors looking to win big in the long run look at 52-week lows rather than highs. Here are the companies with a market cap greater than $500 million that traded below their 52-week lows today:
Company: Wind River Systems (Nasdaq: WIND)
Recent Price: $7.53

Company: NetSuite (NYSE: N)
Recent Price: $18.65

Company: Mentor Corp. (NYSE: MNT)
Recent Price: $28.81

Company: Comcast Holdings (NYSE: CCZ)
Recent Price: $35.00
This is a great way to start your value “screen.” These companies will tend to be in unloved or unfashionable industries. Of course, the next question you have to ask is, “Are they trading at 12-month lows for a good reason?” To find out if business is strong, check earnings growth and return on equity. Anything in the double-digits here is a good sign that business is healthy. To use Ben Graham’s very own value approach, here’s how to do it.
And to get 8 companies on the “strong buy” list, here’s how The Oxford Club’s Perpetual Money Portfolio works. You’ll get 96 dividend checks a year, which you can reinvest, use to buy other investments, or just keep as cash.