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See How The Mighty Have Fallen

Posted: Nov 24, 2008 13:01 PM by Will Ashworth

Tickers in this Article: RL, JCI, WYNN, GES, URBN, BKE, LIZ

In 13 months, $8.3 trillion in wealth has gone up in smoke. That staggering number comes straight from the Dow Jones Wilshire 5000 Composite Index which follows almost all stocks traded in America. To illustrate what's happened, I'm going to look at the market cap of three companies from about a year ago to see what you could buy with that money today. In many instances prices have fallen to the point where you could control an entire industry today for what one company would have cost you just 12 short months ago.

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Casinos Rolling Snake Eyes
A little more than a year ago, 100% of the stock in Wynn Resorts (Nasdaq:WYNN) was worth $17.2 billion, hitting a five-year high of $164.96 on October 29, 2007. Steve Wynn's baby was rolling along and then the bottom fell out. If you banked the $17.2 billion, today you could buy all 21 casino and resort companies listed on Yahoo Finance for $12.4 billion and still have $4.8 billion left over to play the tables. That's what I call a liquidation sale. (For more on sin stocks like casinos, check out A Prelude to Sinful Investing.)

One Too Many Slip Ups
On February 20, 2007, Liz Claiborne's (NYSE:LIZ) stock was trading at $45.06 with a market cap of $4.27 billion. Imagine for a moment that you owned 100% of it and sold every share on that very day, putting it in the bank for use at some other time, like right now. What could you buy with your $4.27 billion? For starters, three retailers with some of the highest net margins in the business: Buckle (NYSE:BKE), Urban Outfitters (Nasdaq:URBN) and Guess (NYSE:GES). For good measure, throw in LIZ with the money left over from the first three. Alternatively, you could buy Ralph Lauren (NYSE:RL) lock, stock and barrel and bank the remaining billion to be on the safe side. Either way, the landscape has drastically changed; those brave enough to weather this rarely seen economic storm will come out the other end sitting pretty.

Auto Parts Sector in Need of Repair
Any business related to the automobile industry has been hurt in the past year, so it's no wonder they're hoping for a bailout of the Big Three. Johnson Controls (NYSE:JCI) is the perfect example: here you have a company generating over $38 billion in sales (and plenty of profit) in the last 12 months that operates several divisions in addition to its auto parts segment, yet its stock wallows in the mud.

Just one-year ago, Johnson Controls hit a five-year high of $43.73. The total market cap at the time was $26 billion, enough to buy more than 40 companies in the auto parts business today (including Johnson, the largest) leaving $4.2 billion to spare. It's just another example of a good company that in the span of 12 months has gone from being a decent-sized large-cap to mid-cap almost overnight. I'd hate to be a money manager right now with the amount of shifting taking place. Today there are 186 companies in the S&P 500 that have market caps under $4 billion, the minimum level for inclusion in the index under normal conditions. (See which companies suit your needs based on market cap in Market Capitalization Defined.)

Bottom Line
There are dozens of industries where valuations have been crushed under the weight of this crisis. The important thing here is to remember that, in the long term, all of these stocks and many others just like them are selling at going-out-of-business prices, the likes of which we may never see again. While there's little we can do about the past, we can control our future. Today is as good a time as ever to follow Warren Buffett's advice to be greedy when others are fearful and fearful when others are greedy.

Given that most investors, including professionals, are currently beyond scared, I think it's safe to say getting back in the game, while difficult, could be one of those few moments in life where you look back and thank your lucky stars you had the courage to act.

For more insight from the best, read Think Like Warren Buffett and Financial Wisdom From Three Wise Men.

By Will Ashworth

Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.

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