Greg Guenthner says small companies often lead the charge toward market recovery. A lot of fundamentally solid small caps are now wearing deeply discounted price tags. Greg says Neenah Paper (NYSE:NP) Silicom Ltd. (NASDAQ:SILC), Buckeye Technologies (NYSE:BKI) are three great examples of bargain stocks.

This from The Rude Awakening:

This financial meltdown is mauling almost every asset class. Stocks are trashed. Corporate bonds are a wreck. Emerging markets are crushed. Energy prices are tumbling. Commodities generally are in the dumps. Safe havens? Get outta here!…Even gold is trending lower. There has been nowhere to hide…except T-bills.

But there is a ray of sunshine; stocks have not been this cheap in more than twenty years…and many stocks are as cheap as anything you could have found at the market lows of 1974. No, we don’t think your should borrow a massive amount of money to invest, hoping for a quick turnaround. But it is time to cautiously look at the opportunities the market presents…

Often, it is the small companies that lead the charge toward market recovery. Just take a look at what some of the market specialists are saying:

“When you look back over the last 10 recessionary environments, what tends to lead back on the upside is small-cap equities.”

— William Greiner, Chief Investment Officer of UMB Asset Management

“Like springtime crocuses, small-cap stocks flourish once the harsh cold of a bear market is over… Because small-caps are undervalued once the market turns around, they benefit disproportionately from an earnings recovery.”

— Larry Light, Wall Street Journal

Now, who knows when the bear market will end, or when the stock market will find a bottom? After the Dow’s 1,000-point rebound on October 13, we all hoped the worst was over. That rebound, however, proved to be nothing but a tease. Over the following weeks, the Dow proceeded to give back every one of those 1,000 points. Then stocks rocketed higher again…and then tumbled again.

Despite these 1,000-point gyrations, the Dow has managed to crawl almost 9% above its bear market low of 8,175. Unfortunately, the beleaguered index would need to gain another 60% to return to its all-time high! So that gives you some idea how far the mighty have fallen. And many of the less-mighty – the small cap stocks – have fallen even farther. But this is where our sad story takes a turn for the better: A lot of very fine stocks are wearing deeply discounted price tags.

Just look at a stock like Neenah Paper (NYSE:NP), a small-cap paper manufacturer that saw its share price slide 80% despite very solid fundamentals. Or look at stocks like chip-maker Silicom Ltd. (NASDAQ:SILC) or chemical manufacturer Buckeye Technologies (NYSE:BKI), both of which have solid fundamentals and P/Es under 7.

Even though the markets have been anything but kind to investors lately, a few courageous (and historically successful) investors are making a good case for buying up some undervalued stocks right now.

Warren Buffett, who has never claimed the ability to predict short-term stock market action, is one of the investors who is beginning to make some purchases. “A simple rule dictates my buying,” the Oracle of Omaha explains, “Be fearful when others are greedy, and be greedy when others are fearful.”

We agree…and we think it’s time to get greedy…at least a little greedy.

Source: Betting on Gambling