When Markets Decline, Stock Prices Get Better

By Sham Gad | September 16, 2011 AAA

Mr. Market didn't quite buy into the hope that the American Jobs Act would boost the economy, and ended the week on a very sour note, sending the market down by over 3%. During those six and a half hours that market headed south, many companies saw their share prices fall even further. Value investors: it's time to pay attention. When prices are declining, the opportunity to find businesses selling for less than their intrinsic worth increases.

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An Emerging Opportunity
With lots of attention bestowed on the growth of the emerging nations like China, India and Brazil, the continued market decline is creating an opportunity again here in the good old United States. The key for investors is to remove the veil of short-term expectations and instead focus on the opportunities today for those willing to make a long-term bet on the U.S. economy.

Rowan (NYSE:RDC) is a $4.5 billion company that provides onshore and offshore oil and gas drilling services to a global array of customers. The company has a solid balance sheet with only $500 million in net debt. Shares trade at seven times earnings and at par with book value. Archer Daniels Midland (NYSE:ADM) processes, transports and provides storage services for agricultural commodities worldwide. At $27 a share, the company is valued at eight times forward earnings and yields 2.3%.

Still More Value
Amtech Systems (Nasdaq:ASYS) designs and sells equipment used for the semiconductor industry. The stock trades for $10 and the a balance sheet with zero debt and over $6 per share in cash. If that wasn't even enough, the company trades at less than four times earnings.

At $12 a share, oil company Harvest Natural Resources (NYSE:HNR) looks interesting again after hitting a high of $17 earlier this year. Along with that share price comes $3 in net cash per share as well a valuation of five times trailing earnings and 10 times forward earnings. In addition to its operations in Venezuela, Harvest is creating oil options for itself in various parts of the world. Any exploratory success will likely create tremendous value. But even at today's price, current operations are likely worth more than what the market thinks.

The Bottom Line
Prices determine the ultimate value received from any investment. Rather than trying to foolishly time the markets, investors are better served buying at attractive prices and letting value be the ultimate catalyst for investment success. (For additional reading, take a look at Spotting A Market Bottom.)

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