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Casting For Cast Offs, Let's Go Bottom Fishing

Posted: Oct 23, 2008 10:27 AM by Todd Shriber

Tickers in this Article: SDA, SID, TEX, MTW, WFT, NOV

After months of proverbial "blood on the street", it appears U.S. equity markets may be in the formative stages of a value investor's paradise. Whether it be a thawing in the credit markets, rumors of a second economic stimulus package or recent prodding by legendary value investor Warren Buffet to buy American stocks, U.S. exchanges have rallied in recent days, possibly sending signals that the worst may be over.

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That said, the buyer should beware. Bear market rallies have been known to lull over-anxious investors into the market early, only to snap back down, leaving investors with nothing more than losses and regret, but if your portfolio's time horizon is a year or more, now might be a good time to start perusing U.S. markets for some good buys on the cheap.

Here are a few bottom fishing ideas for those on the lookout for great names at a discount:

Company	Market Cap	P/E TTM
Companhia Siderurgica Nacional (NYSE:SID)	$8.6B	14
Manitowoc (NYSE:MTW)	$1.3B	3
National Oilwell Varco (NYSE:NOV)	$10.2B	6
Terex Corp. (NYSE:TEX)	$1.6B	3

Oil is Cheap, and So are Oil Stocks
In what has been a welcome turn of events for struggling consumers, crude oil prices have plunged more than 50% from their summer high of $147 barrel. This is great news for consumers and industries such as airlines and truckers that depend on oil as an essential component of day-to-day operation. It's bad news for investors holding shares of oil stocks. Given oil's plunge, the opportunity is here to purchase some solid franchises at discount prices.

National Oilwell Varco (NOV) is one of those companies trading at a discount. NOV is one of the largest suppliers of components and systems for oil drills and rigs. The company bolstered its position as a market leader by acquiring rival Grant Prideco earlier this year. To be sure, the fall in NOV's share price has been as precipitous as the fall in crude oil itself. NOV shares now languish around their October 22 close of $24.48 after reaching almost $93 earlier this year. The $10.22 billion company appears inexpensive here with a 12-month-trailing price-to-earnings ratio of six. Its balance sheet boasts $1.65 billion in cash on hand.

NOV's rival Weatherford International Ltd. (NYSE:WFT) has seen its shares pared by roughly two-thirds as well, falling to around $14 from a high of almost $50 earlier this year. The theme is familiar, falling oil prices equal falling share prices. Weatherford, which reported strong third-quarter results on Monday, has a market value of $9.4 billion and nearly $270 million in cash on hand. Weatherford has a 12-month-trailing-price-to-earnings ration of 8. (Thinking about gaining exposure to the energy sector, read Oil And Gas Industry Primer.)

Infrastructure Isn't Dead
As emerging market economies such as China and India have joined the global slowdown, so has their thirst for infrastructure projects. This phenomenon may take a little while to sort itself out, so investors need to proceed with caution when bottom-fishing in this sector. The encouraging news is that it is likely, regardless of what party controls the White House and Congress next year, that the U.S. government will continue spending taxpayer dollars on projects to improve highways and the like.

That could benefit firms like Manitowoc and Terex. Both companies are dominant makers of cranes for construction sites and other construction vehicles such as small bulldozers and hauling vehicles. Manitowoc's shares have plunged to around $10 after flying over $51 earlier this year, giving the $1.3 billion company all the makings of an inexpensive buy with a 12-month-trailing-price-to-earnings of almost 3.

Rival Terex is in a similar boat. The $1.6 billion company has seen its shares fall nearly 75% to around $17 from $83 earlier this year. Terex looks extremely affordable here with a tidy P/E of under 3. Either way, Manitowoc and Terex give investors cheap ways to play infrastructure's return when global economies improve.

Viva Brazil (Maybe)
Brazil was an emerging market darling for much of 2007, with nearly every one of its American Depositary Receipts (ADRs) surging on U.S. exchanges. The oil-laden nation thrived as oil prices rose and its currency, the real, throttled higher against the U.S. dollar. However, Brazil wasn't immune from the global slowdown and falling oil prices. This makes Brazil worth exploring for investors in need of some international exposure in their portfolios. Companhia Siderurgica Nacional is Brazil's No. 2 steelmaker and its shares have been punished along with other steel stocks. The $8.6 billion company now has a P/E of 14 and an inconsistent dividend which last paid approximately 26 cents per share back in August. Its shares have fallen from over $52 in May to around $11.

Apparently food stocks aren't the safe-haven in Brazil that they are in the U.S. Sadia S.A. (NYSE:SDA) proves that point, as the maker of frozen foods has seen its share price plummet to under $6 from $26 earlier this year. Now, the company may be considered a "small cap" with a market value of $528 million. The shares are still cheap with a P/E of 1, and there is the added bonus of a small dividend for your trouble. The average one-year estimate according to Yahoo Finance for Sadia shares is $14.70, so investors could get a quick double out of this one.

Bottom Line: Nothing's Free, but These Stocks are Close
The benefit of market downturns is that they do present investors with unique opportunities to emphasize value at a discount and who doesn't like to pay less for something than its actually worth? The theme among the aforementioned stocks is similar: Good companies that have exceptional market positions and international exposure that have been beaten down. Get while the getting is good because it may be a long time before names like this offer such attractive discounts.

To learn more about investing in a down market, read Surviving Bear Country.

By Todd Shriber

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