“Sure, I’ll buy it at that price. It’s going to be here in 10 years. And it’ll still be here in 100 years.”

I heard that statement when I was watching Fox business news on Friday. I waited to hear the name of the company, but it didn’t come up again. The broadcast moved on to another topic and my attention was diverted.

Was it Macy’s (M)? Exxon (XOM)? GM? Sears (SHLD)? All those companies slumped while making news on Friday.

With the market down, a lot of companies are sporting attractive price-to-earnings. The Dow’s forward P/E is only 12.5. The S&P 500’s is only 14.6.

Why not invest in some upscale names going for downscale prices? If you do, be careful. Sure, the market drags down the good companies along with the bad. But the cheapest buys may be basement bargains for a reason.

Take Sears, for example. The company has a proud tradition and a famous name, but the retailer is only a shadow of its former self. It was for several decades the mega-store of its day. The famous Sears catalog – as big as a phonebook – clued America in to the latest gadgets, fashions, tools, appliances, toys, and everything in between. America trusted the “solid as Sears” brand and flocked to its stores.

Seems like ancient history, doesn’t it? Sears lost its way but, it didn’t happen overnight. It took years. And during this period, many investors bought Sears for its cheap price and famous name. But the name couldn’t revive the price. Now both are diminished and will probably remain so.

Did it have to turn out that way? I don’t think so. With smarter management, Sears could have done much better.

But some sectors have no choice but to wither away. Their time has simply come and gone.

Take newspapers, for example. I loved reading newspapers when I was growing up in Salem, Massachusetts. My favorite journalist? It was William F. Buckley Jr. He was always spouting off.

I always had a dictionary beside me when I turned to the editorial pages to find his column. It was great. I picked up at least 3-4 new words every time I read his articles. (When I went to university in London, a highlight was watching Mr. Buckley debate the highly respected leftist intellectual and renowned orator, Mr. Tony Benn. Buckley held his own, but so did Benn.)

So, a few years ago, when a search engine (using some of my favorite value ratios) popped out the names of the New York Times, Washington Post, and the USA TODAY, I was more than intrigued. I was kicking myself with delight. With P/E ratios under 10, how could I not invest in them?

Of course, I checked them out but (in hindsight) with perhaps a little less rigor than usual. I ended up going with USA TODAY. It wasn’t one of my best decisions. The newspaper industry had changed. I knew that, of course. But I had underestimated by how much.

It was no longer the newspaper business I had grown up with. That was easy money. In his 2007 “Letter to Shareholders,” Warren Buffet explains it best:

“…the newspaper business was as easy a way to make huge returns as existed in America. As one not-too-bright publisher famously said, “I owe my fortune to two great American institutions: monopoly and nepotism.” No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.”

The Internet took all of that away. Newspapers lost their exclusivity, seemingly overnight. An almost infinite choice of media outlets on the Internet were vying with newspapers for a finite set of eyeballs. The newspaper business as we knew it faded away and bad management had nothing to do with it.

Newspapers were a trap for investors. Here are some other traps you should avoid:

• Banks. Do you think the sovereign wealth funds regret pouring billions into America’s biggest banks? They should. Slicing and dicing mortgage securities into so-called high-quality derivative instruments and then selling them throughout the world didn’t work out so well, did it? And right now, there’s nothing to replace this formerly lucrative practice that brought in trillions of dollars to the banks.

• Oil majors. Do they have a plan for the future? Exxon’s capital expenditures budget is smaller than the money it uses to buy back shares. Falling future production plus falling futures prices (2015 oil futures are lower than today’s prices for the first time in over a year) add up to falling profits. Big oil’s business model is broken.

• Any sector that depends on cheap oil is in trouble. Airlines? Their problems extend way beyond expensive jet fuel. But putting 2,000 airplanes out to pasture isn’t a sign of a healthy sector. Petrochemical companies? Trucking? Fertilizer companies (that use natural gas as their main raw material)? They’re all getting killed.

But not the auto sector. This sector isn’t broken. Even GM with its billions of losses isn’t broken. Auto companies have to give consumers what they want. That’s all. And what they want is smaller, gas-sipping cars.

Auto companies should be among the first group of companies to blast out of the recession and lead the market to higher ground. The real bargains will be the companies that give drivers what they want. And you can find them in the U.S., Japan, Korea and India.

Invest well,

Andrew Gordon

Source: The Business Behind the Big Name is What Counts