Time To Bite On Tempting Stocks

For the second quarter of 2010 the stock market, as measured by the S&P 500 index, was down 10%, the worst quarterly performance in the last five quarters. Weak economy or not, a pullback is expected when markets go up nearly 100% from the March 2009 bottom. Stocks fell hard in 2008 and the subsequent rebound was just as impressive. Now, it looks like time for a healthy correction.

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Don't Wait for a Bottom
How long and how far the decline will be is anyone's guess. Instead of wasting time on the useless effort of predicting a market bottom, take a closer look at the stock prices of companies you wanted to own previously but couldn't because the rally sent shares soaring. Being company-focused versus market-focused is a much more intelligent approach and one likely to reward patient investors.

Coming back down to interesting levels is heavy construction equipment maker Terex (NYSE:TEX), with shares now back around $17 or a market cap of $2 billion. The price is now below book value for a company that earned over $600 million in 2007. That was the cyclical top and today we are heading toward the cyclical bottom. It may take two or three years for business to really get going again, but when it does today's price could look like a steal. No other quality construction equipment firm trades as cheap as Terex; Caterpillar (NYSE:CAT) and Deere (NYSE:DE) both trade for more than four times book value. (For more, see Digging Into Book Value.)

A Powerful Horse
Zinc producer Horsehead Holding (Nasdaq:ZINC) has fallen by nearly 50% from its all-time high of $13.92 earlier this year. The company now has a market cap of $330 million with nearly $90 million in net cash and now trades at a slight discount to book value. Horsehead is a very interesting company as it produces zinc by recycling electric arc furnace dust. EAF dust is a hazardous byproduct produced by steel mini-mills. Horsehead has state-of-the-art facilities that will recycle this dust and turn it into valuable zinc that can be sold. Because steel companies are required to dispose of this dust in an environmentally responsible manner, they are happy to pass it along to Horsehead. As a result, Horsehead has one of the lowest costs of production among any zinc producers. Own it today when zinc prices are at a low. Increases in the prices of zinc lever this company's profit tremendously.

Buy Businesses
If you view the stock market as a place to buy ownership interests in all manner of businesses, you will easily discover that the recent market correction is starting to put companies back on the radar value screen. (For more, see The Value Investor's Handbook.)

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