While many technology stocks appear to be stuck in a speculative bubble, there are many less hyped investments that investors should consider for the longer term. While I am not buying into the speculative rally in shares that trade for 100X earnings, I do see value in many of the shunned names across many hated and despised sectors. In the end, most of the companies on this list will be around ten years from now but of course the difficulty in investing is separating the undervalued names from the stocks of companies that are in long-term secular decline.
Look, do I think we could head into a 2008 mega-bear market? Yes, I do but I also think investors with a longer-term horizon should start investing in cheap stocks now and add if we head lower. I never understood those who sold after stock market crashes or those who buy after stock market rallies. Buy low and sell high. It's easier said than done, but by following 100-200 stocks of great companies you can find things on sale in any market and can use hedging techniques to manage risk.
Bunge Limited (BG) -- Trading for around 70% of book value, Bunge offers investors a unique way to play the bull market in agricultural commodities. Bunge has a huge presence in the South American farming, food stuff, and commodity markets. BG also trades for around 9X earnings, making this stock a great longer-term investment candidate, which boasts an ROE north of 10% per year.
Union Pacific (UNP) -- is a cheap name and after a 20% decline this stock is starting to look more interesting. While the sell-off in railroads has been swift and severe, I think the sector is poised to outperform over the long run because of high oil prices, the lack of a real plan for natural gas trucking (which shoud be mandated asap), and the continued boom in commodity markets thanks to the bailouts and ZIRP.
Hastings Entertainment (HAST) -- is a microcap value name trading at just 24% of tangible book value. The company has been around since 1968 and management owns roughly 50% of the common stock. Hopefully, Hastings can stem the decline in the top line or at least cut SG&A to remain profitable in the midst of the shift to digital delivery of entertainment products. Hastings has traditionally delivered free cash flow of around $9 million or so, and given the company is trading for just 3X that number, I view the shares as a good bargain at current levels. That said, there are risks to the business model and Hastings needs to change and adapt to digital in a much quicker fashion if it wants to preserve the top line and grow the bottom line. The gohastings.com website has over 300,000 monthly unique visitors, however, and that alone could boost the shares over the longer term.
Research In Motion (RIMM) -- Carl Icahn was recently rumored to have purchased shares of Research In Motion and at 4.6X forward earnings and 4X trailing earnings the shares are pretty cheap here by any estimation of intrinsic value. Technology companies that compete with Apple (AAPL) are pretty tough to call because Apple is so enormous and the products have penetrated the market to such a huge degree. While it was disappointing that RIMM missed earnings, I thought the shorts got away with a huge coup given the fact that the shares are already so cheap and that under-performance was pretty much baked into the valuation cake already. At this point the RIMM shorts are flirting with disaster as an Icahn push could seriously destroy the momentum to the downside that short sellers are banking on -- RIMM's float is heavily shorted here and a short covering rally could occur at any point.
General Dynamics (GD) -- is a hated stock right now and much of this has to do with threats to military spending. While the talk is loud, talk is cheap and the U.S. loves its military spending addiction almost as much as teenagers love gaming over their ipads and iphones. At 8.3X earnings and with a 3.3% dividend, General Dynamics shares are dirt cheap. General Dynamics has little in the way of tangible common equity and this is worrisome if spending cuts actually hit the defense sector. In the end, I think betting against the defense sector is a wrong way trade.
Petrobras (PBR) -- is a dirt cheap stock at this point, trading at a silly 6.4X earnings and at 90% of book value. Petrobras is growing, the company is adding to reserves, and the stock is trading at a price not seen in years. That said, the BRIC shares are all in free fall at the moment as Brazil and Russia in particular are getting hammered right now. I don't see oil heading too much lower and if oil prices catch a bid, PBR will likely move higher.
Hess (HES) -- is another dirt cheap oil name right now, and I can't see this name trading at 80% of tangible book at this point. Hess is hovering around 6X earnings and for a discount to book value and if the name falls any further I think long-term buyers of the stock will make nice returns going forward. Selling at the money January or April put options makes a good deal of sense as a way to buy the shares for a lower price.
Disclosure: I am long RIMM, HAST, UNP, BG, HES, PBR.