Certainly, the market’s recent dramatic swings have scrambled the heads of many investors. Mostly, it’s been a nasty slide down — a history-making drop that has caused a lot of agitation and remorse. Many investors are giving up. “I just don’t have the stomach for it anymore,” a semi-retired computer programmer told the Wall Street Journal, as he moved his remaining assets into T-bills.

I share the computer programmer’s frustration and anxiety. But now is the time to really pay attention. The stock market’s history-making drop may be creating some equally historic buying opportunities.

This bear market has few precedents. Really, you have to look back to the 1930s to find anything like it. According to Barron’s, at the S&P 500’s late-November lows, the blue chip index had given back a decade worth of gains. And even after the market’s recent rebound, 2008 would still be the worst year for stocks since 1931, when they dropped 53%. In the whole of the 20th century, no decline has exceeded 50%, save for the 1929-32 bear market.

Other tidbits of interest from Barron’s: The current bear market is 284 days old. We are down almost exactly as much after 284 days as the 1929-32 and 1937-38 bear markets were after 284 days. Whether our bear market looks ultimately more like 1929-32 or 1937-38 is an open question, of course. The former went on to post a total loss of 86% top to bottom. The latter, though, rallied and made up 50% of the losses in the next six months. Another hopeful message: The average time to recoup a bear market loss has been 22 months, excluding the 1929-32 collapse. As with the big crash, so with the rebound — it will come when people least expect it.

Resource stocks look like they’ve already had their 1929-32 style crash in just the last few months. Many resource names plummeted 80% or worse from top to bottom. Even companies that looked like they were in decent financial shape only a few months ago are now scrambling to raise liquidity and stave off a financial crisis.

It reminds me of what Joe Scaminace, the CEO of OM Group (OMG:nyse), said during the company’s latest conference call: “We believe very strongly that the battle will be won and lost on the balance sheet in this environment.” I agree with him. A strong balance sheet means that financially, you are in control of your own destiny. It means you don’t need to raise money, nor do you have a looming debt coming due soon. It means you’re going to be a survivor. It’s going to come down to the survivors. The upside could be spectacular on the other side for them.

OM Group is among those with no net debt and plenty of excess cash. It’s also immensely profitable, even at these lower commodity prices. The long-term demand for cobalt-needy products, such as rechargeable batteries, provides a bright looking future (particularly as it relates to vehicles). Not without peril, of course, but I’d rather face those perils with financial strength of the kind OM has than weaker, more speculative ventures.

I also like companies like Ameron Intl. (AMN:nyse) and Contango Oil & Gas (MCF:amex), both of which have plenty of excess cash and no net debt.

Balance sheets contain the kinds of critical details people tend to ignore when times are good. But if ever there were a time to focus on balance sheet strength, it is now!

“A period of prosperity contains the seeds of its own destruction,” observed that storied investor, Phil Carret, in his book The Art of Speculation (1930). “Businessmen forget the painstaking care by which they have built up their enterprises and commit themselves to reckless plans of expansion.”

This financial calamity we’re going through now will lead to the demise of those who were reckless and stretched too thin. The benefits will ultimately accrue to those who kept a little something in reserve for just such a rainy day.

One stock in particular I would encourage you to give another look: Texas Pacific Land Trust (TPL:nyse). On Friday, it slipped below $20 per share. Texas Pacific Land Trust owns nearly a million acres of land. At Friday’s valuation, the market value of the whole company is about $200 million. The implied valuation is about $200 per acre. I don’t know that the company has ever sold acres for less than an average price of $200 per acre in the last several years. Last year, the average sale was $1,244 per acre. In the last quarter, ending Sept. 30, the company sold land at an average price of $400 per acre.

It’s hard to say what all the land is worth. The company opportunistically sells pieces over time and uses the proceeds to buy back stock. So as long as it nets more than the $200 per acre in implied value, shareholders win. So far, it’s done that easily.

Of course, that’s not all there is to this company. The company also owns a number of oil and gas royalties. In the last quarter alone, the trust generated $4.6 million in royalty income. This is nearly pure profit. The company has practically no expenses. In fact, it pays more in federal income taxes. My initial estimate put the oil and gas royalties at $20 per share, assuming oil at $70 and natural gas at $7. There is a lot of margin of safety in these royalties alone, even at currently depressed prices.

And finally, what’s great about this old trust is that it’s practically immune to the whole economic crisis. It does not have to sell land. It can sit on it and wait it out. The trust has been around since 1888. It will get through this.

Texas Pacific Land Trust is a low-risk business and a great long-term holding. Today’s market gives you a chance to add to your holdings at very attractive prices. And that, I suppose, is one thing we can be thankful for in all this mess.

Source: Anti-Depression Remedies

This from The Rude Awakening:

The panic in this market is incredible. It’s leading to some absurd valuations. Particularly among the smaller-cap stocks. These stocks have really been hit hard because they have less liquidity than large cap stocks.

When waves of selling sweep through the stock market, they might rock a large cap stock from stem to stern. But the same waves will capsize a small cap stock. So the conditions in the financial markets are very scary right now for any investor who’s holding small-cap resource stocks. But unless we slip into some global depression, these stocks will come back – and come back with a vengeance.

I, for one, can’t wait until earnings season, when we’ll get fresh numbers and updates on the companies I’ve been recommending to the subscribers of my investment service, Mayer’s Special Situations. I’m betting that the earnings power of many of these companies has not changed all that much in the last 90 days – at least not as much as their tumbling stock prices would have you believe.

So I’d like to highlight some stocks that look like particularly deep values right now.

NGAS Resources (NASDAQ:NGAS). Recent price: $1.47. I like the long-term outlook for natural gas. As T. Boone Pickens, the 80-year-old billionaire investor, says, “Natural gas is the fuel of the future.” It is clean-burning, and we have a lot of it in America. The estimates for U.S. shale plays are up around 840 trillion cubic feet of gas – the equivalent of more than 140 billion barrels of oil – or more than half the stated reserves of Saudi Arabia. Energy independence? Seems to me you have to look at natural gas.

NGAS has plenty of acreage. It also owns 636 miles of pipelines. It owns the critical infrastructure to bring its gas to market. The proved reserves alone – some 102 billion cubic feet of gas – ought to fetch $10 per share for a potential purchaser. The pipelines, at only 10 times pretax earnings, come in at about $65 million – or $2.50 per share. So infrastructure assets – which are becoming increasingly expensive to build – easily cover your entire investment in NGAS, since the shares trade for about $1.48 as I write. And I haven’t even put any value on the undeveloped acreage. The net asset value (NAV) per share on NGAS is somewhere north of $12 per share.

NGAS has some debt, which we have to watch. It has $95 million in debt, but it is not due until 2010 and 2011. If natural gas prices stay low for a long stretch of time, this debt could cause some problems. The value of the assets in NGAS, though, offers a lot of protection.

OM Group (NYSE:OMG). Recent price: $18.63. This is another one that baffles. OM Group had a great quarter ending June 30, and the shares surged 18% the day it announced earnings and nearly got to $40 in the ensuing rally. We got our shares for $30. Today, they are about $19. Amazing.

OM Group makes all kinds of chemicals, powders and materials, mostly from three metals: cobalt, nickel and copper. You can find the original recommendation in letter No. 25. That thesis is still intact, and I won’t rehash the whole thing here. Except I will point out that the company now trades for 3.5 times earnings. Predicting where these earnings will go from here is almost impossible. But I’m comfortable with the cobalt story and the metal’s growing use in batteries and aerospace. And at these prices, you can be wrong on earnings and still come out looking good.

Cobalt prices have tumbled to $13 per pound, compared to about $35 one year ago. As a result, earnings estimates are all over the map – ranging from $1.90 a share on the low side to $5.00 on the high side. For perspective, OMG earned $5.00 in 2007, when the cobalt price averaged $29 a pound. So maybe 2009 is a bad year. But the cobalt price will rebound eventually, and when it does, OMG will rebound as well. I should also point out that OMG has no net debt and plenty of excess cash, yet trades for less than half of stated book value.

The market is factoring in a very gloomy outlook for OMG, even though the most recent quarter gave us nothing but positive news (remember that 18% single-day gain). The market seems to have forgotten that and thrown out OM Group’s shares with all other commodity names.

Canadian Superior Energy (AMEX:SMX). Recent Price: $1.01 I was in Manhattan recently for the Value Investing Congress. The West Coast Asset Management team was there. They made a presentation on a few ideas they like. Someone asked them about Canadian Superior, which was their favorite idea about six months ago. They still like it and said that since their presentation, Canadian “has done nothing but knock the cover off the ball.”

I agree. Since we’ve owned it, Canadian has delivered good news on the exploration front and overall good results. These bits of news have, at times, sent the shares up as much as 20% in a single day. But those gains soon melted under the barrage of broader bad economic news and the market’s overwhelming sell-off.

As long as natural gas prices remain in the can, it seems as if market sentiment won’t turn much on the natural gas names. The market has just stomped on all of them and pushed share prices to really cheap levels. I think Canadian is a steal and gives you legitimate 10 times potential from its current price of only $1.00 per share. We picked up shares in June, and you can find the full write-up in letter No. 24.

Altius Minerals (TSX:ALS). Recent price: C$4.10. Altius owns a portfolio of royalties and prospects in Newfoundland and Labrador. This stock has tumbled to the sort of valuation extreme that I have rarely seen during my carreer. In fact, it is so statistically cheap that it is the kind of stock I have only read about in the dusty financial history books on the Great Depression. It’s something Ben Graham might’ve stumbled on in 1934.

The stock sells for less than its net cash!

The stock market currently values Altius at C$127 million. But as recently as June 30, the company had $187 million in cash. And that’s not its only asset. Nor is the company losing money. It’s actually adding to that cash pile. No surprise that insiders are buying. Plus, the company announced it would buy back 10% of the stock. So at the current price, in theory, you can buy the company for $127 million, drain the company treasury to get your purchase price back and still have $46 million left in cash, plus all the assets for free.

Altius, like all the stocks I have I highlighted here, look really, really cheap, with big upside.

I believe that’s really all we can do as investors. We can’t say what other people will pay for the stock or when they might pay more than they do today. We can only find these anomalies and wait for the market to correct the gaps, as it does over time.

I know that for the last couple of months, the stock market has been a very treacherous place for investment capital. On the other hand, cheap is cheap. And some of the stocks I’ve mentioned above are “Depression-style” cheap. I am not trading in and out of the market, trying to pick tops and bottoms. I believe such an effort is futile. Instead, I look for deep values and collect good bets.

Over time, we’ll get paid. But in crazy markets like this, we have to realize it might take a little while. We’ll have to be patient and build low-cost positions in these stocks. These are the times when you plant the seeds of monster future returns.

All bear market cycles turn eventually – as even this one will.

Source: Shooting Stocks in a Barrel, Part II

The price of fuel now makes up 35 percent of airline costs compared with 13 percent a decade ago. Capital and Crisis editor Chris Mayer says if oil prices stay where they are and nothing else changes, the airline industry will lose about $6 billion this year, compared with a profit of $5.6 billion last year.

This creates a great ‘hidden’ opportunity for investors. More fuel-efficient engines will require the use of exotic metals that can cope with higher-then-normal engine temperatures – metals like cobalt…

The industry is trying – and will try – lots of different tactics to fend off elimination. One of these is to push for more fuel-efficient aircraft. And that is the opportunity for investors to cash in on this crisis.

It starts with the jet engine. Recently, the Wall Street Journal published “Jet Engine Makers Launch New War” – all about the drive for new fuel-efficient engines. The piece notes that airlines worldwide want to replace their existing fleets with next-generation planes, not the current oil-guzzling models. The goal of the jet engine makers – or rather, the mandate put to them by their customers – is to deliver at least double-digit gains in fuel-efficiency.

As the WSJ reports: “Developing fuel-efficient engines requires the use of exotic alloys and ceramic coatings that can cope with internal engine temperatures that would be above the melting points of untreated metal components.”

Enter cobalt. It’s a tough metal with a high melting point of 2,700 degrees Fahrenheit. This higher melting point allows it to maintain its strength at higher temperatures than other metals can. Cobalt alloys have higher melting points than either nickel or iron alloys.

As a result, one of the main uses of cobalt is in superalloys such as those that jet engine makers need. In fact, the making of superalloys consumed about a quarter of global cobalt production, of which about 75 percent wound up in aircraft.

Cobalt would seem to have a nice backdrop of long-term demand. But it doesn’t stop there. Defense spending is also on the rise globally. A Financial Times report on aerospace notes that India, China, Brazil and certain Middle Eastern countries are all upping their defense spending. India alone may spend $40 billion in 2009.

Cobalt is an important part of all that, too. In fact, the U.S. and the Soviet Union used to stockpile cobalt for defense purposes. Those stockpiles are long gone, but the role cobalt plays in defense still exists.

As exciting as the aerospace angle is, a potentially bigger market could be batteries for hybrid cars. As I pointed out in the last issue, there are 5-10 pounds of cobalt in a typical hybrid car battery. Hybrid car sales will probably hit 500,000 cars this year. And that is growing rapidly.

Kitco recently noted that cobalt holds an electric charge better than almost any other metal. That makes it hard to replace, even at $50 per pound. “And the current electric batteries work so well,” Kitco notes, “[that] there is little incentive to change their structure (and other metal prices have skyrocketed, as well as cobalt — nothing is cheap anymore).”

With the failure of banks and the troubles of big financials such as Fannie Mae (NYSE:FNM), cobalt seems a nice place to be. A while ago, I recommended a “cobalt play” to the readers of my investment service, Mayer’s Special Situations. The name of the stock is OM Group (NYSE:OMG). I should warn you that the stock is a bit speculative. But let me share a few of the particulars…

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OMG carries a seemingly absurd valuation. It’s not often that you find profitable and growing companies with no net debt trading for big discounts to book value. The specialty chemical industry – a tribe to which OMG belongs – is undergoing heavy consolidation. Companies are getting bought out left and right. Dow Chemical (NYSE:DOW) bought Rohm and Haas (NYSE:ROH) for a 74 percent premium. And then Ashland (NYSE:ASH) came along and bought Hercules (NYSE:HPC) for a 38 percent premium.

Companies that make low-margin chemicals are looking to beef up on companies that make high-margin, or specialty, chemicals. Because OMG is cheap and very profitable, it has to be on someone’s radar. I hope that it doesn’t get bought out. I think we’ll do better holding the stock. But the deal-happy scene in the chemical business is another potential backstop of value here.

Hard to believe that anyone could buy all of OMG for anything less than at least book – which is $36 per share. And even that would bring howls of protest. After all, the stock was in the $50s for much of the past year. We will see.

In any event, let’s bring this back around to the aviation crisis. A familiar theme in the pages of my letters over the years has been this Templetonian notion of focusing on the opportunities that problems present. The late great John Templeton made this idea a key component of his investment — and life – philosophy.

The high price of oil is a big problem for many industries.

So if you have a good way to mitigate the high price of oil, you have a business. I think the big winners over the next few years are going to be those companies that have a solution to the high price of oil. Those companies have products that other people will pay up for, because fuel-efficiency is a must. The aerospace industry must become more fuel-efficient.

Cobalt alloys will be a big part of that trend.

Source: Fuel Friendly Skies