One of the most consistent pieces of advice I have ever read about investing went something like this: "Buy when everyone else is selling, and sell when everyone else is buying." The rationale behind this statement is steeped in a commonsensical investment philosophy, which is simply that during the presence of sellers, the likelihood of purchasing stocks selling at below the intrinsic value of the business is high. While no one will argue that the 2009 rally that began in March has been aided by Uncle Sam, the widespread prevalence of sellers led to some historic opportunities.
IN PICTURES: Eight Ways To Survive A Market Downturn
A Look Back
Back in March, when sellers were at their peak of activity, shares in commodity giant Teck Resources (NYSE: TCK) were trading as low as $2.61. At that price, the company was being valued at less than $1.5 billion. To be sure, Teck had taken on a heavy debt load in a previous acquisition, and that certainly warranted concern given the restricted credit markets. But that concern was vastly discounted in the share price. At $2.60 a share, one was buying a commodities giant that had earned $3, $5.82, $3.92 and $1.30 per share over the 2005-2008 years. In addition, one was paying $1.3 billion for a company with an equity value over $10 billion at the end of 2008. Today, Teck shares fetch over $37, up over 1200% from the March lows and over 600% year to date. And Teck wasn't an unknown micro-cap company, but one well-known to many investors. (For related reading, check out Finding Undiscovered Stocks.)
Quality companies like Teck were there for the taking at the beginning of 2009. Latin American farming giant Cresud (Nasdaq: CRESY) was trading in the mid-single digits for most the first half of the year, despite stated book value of over $12 per share that in itself was undervalued due to the farmland's appreciation value. Shares have nearly doubled year to date and are up nearly 200% since the rally began.
A Look Forward
Yet Mr. Market has left some names for investors to consider today that are still relatively out of favor. While these names have benefited from the rally, they still remain undervalued. Construction equipment company Terex (NYSE: TEX) trades at $21 down from over $80 during the boom times. Earlier this week, the company announced the sale of its mining division for $1.3 billion in cash. This sale represents 45% of the company's EV for a division that accounted for 13% of annual revenues and 25% of operating profits. Management has a goal of $6 EPS by 2013. Terex is a baby compared with giant Caterpillar (NYSE: CAT), but it represents far greater growth opportunities. Should Terex manage to achieve its 2013 targets, its shares will be up significantly in the next couple of years in anticipation of these results since markets are forward-looking creatures. (For more, see Profiting In A Post-Recession Economy.)
Zig When The Market Zags
No matter the year or market environment, following a contrarian approach of avoiding investing with the masses and instead focusing on value, wherever it may be, offers the best recipe for consistent long-term results.
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