These Stocks Are Cheap Enough to Buy Themselves
By Dan Ferris, editor, Extreme Value
October 16, 2008

I love bear markets.

Without them, my job would be damn near impossible.

Without times of great financial turmoil, it's hard to make a lot of money in stocks. For most of 2007 and 2008, it was almost impossible to find stocks with the potential to rise 100%-500%. For value investors, it was downright demoralizing.

We need bad times to buy stocks cheaply enough to make us rich over the long term. That time is now.

Since the beginning of the year, the Dow Jones Industrial Average has fallen about 34%. The S&P 500 is down 36%. And the Nasdaq is off 37%. So far, this is the worst year for stocks in history.

That's created dozens of opportunities to buy world-dominating franchises with great balance sheets and good businesses for half of what they're worth – or even less.

Software giant Microsoft (MSFT) is a great example of a super cheap stock. Microsoft is making more free cash flow than ever before in its history, about $18 billion a year. It's also got $21 billion of cash on its balance sheet. It literally makes more money than it knows what to do with.

All of Microsoft's outstanding shares added together at today's share price total roughly $218 billion. If you used $20 billion of Microsoft's cash as a down payment, you could borrow enough money at 5.6% interest (about what Microsoft would have to pay) to buy the rest of the outstanding shares. And you'd still clear over $6 billion a year to do with as you please.

I don't think anyone's angling to takeover Microsoft at this price. That's not the point. These numbers just illustrate how utterly cheap Microsoft is right now. And Microsoft isn't the only one.

Big Oil blue chip ExxonMobil (XOM) is super cheap, too. ExxonMobil always makes money. It can make tons of money even if oil sells for $30 a barrel, let alone for $75. Over the last four quarters, it generated a record $43.9 billion of free cash flow. All of the outstanding shares are available today for less than eight times that amount.

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ExxonMobil makes more money than any company on Earth. And it gives most of it back to shareholders. Over the last four quarters, it spent $41.8 billion on dividends and share repurchases. It has raised its dividend every year for 25 years in a row. Everyone should own some of this stock.

Back in 2002 and 2003, I told my subscribers to buy stocks trading at big discounts to their net asset values. Extreme Value readers watched them rise as much as 600% over the next few years. Those stocks weren't nearly as cheap as some of the stocks I'm finding today.

Good investing,

Editor's note: Dan Ferris is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.

Sign up today to read more investment ideas from Dan Ferris.

WITHOUT A DOUBT, THE HOTTEST HAND IN FINANCE

On September 13, we featured a prediction from the "hottest hand" in finance.

The prediction was from our colleague Porter Stansberry. He called it "The Stock Market's Easiest One-Way Bet." Porter says the onslaught of free classified services and Internet marketing will destroy the shares of most major newspaper companies... some of whom have enormous overhead and big debt loads.

Porter went a step further for readers of his advisory. He recommended a bearish bet on Gannett... one of America's largest newspaper publishers. Its flagship brand, USA Today, is a mainstay of hotel lobbies and airport trashcans around the country. Gannett's ad revenue and cash flows are drying up like a cow pie in August.

Porter's readers made a lot of money on the demise of General Motors, Fannie Mae, and Freddie Mac. And his newspaper call has proved just as profitable. Gannett is plummeting right now. It's down 33% since his recommendation. If you're not reading Porter's advisory, you're missing out on the best investment newsletter in the world, period. It's also a steal at the price being offered here.