Three Value Picks for a Down Market

Surely there's some value out there to be had, in fact probably a great deal. I believe that many of us will be kicking ourselves within the next 12 to 18 months, when we lament that we did not buy (insert company name) at (insert price).

My list of favorites contains some names that are off the beaten path. What would you expect from a guy who runs a Web site dedicated to "net/nets" -- companies trading below net current asset value?

Wendy's (WEN - commentary - Cramer's Take): Here's my more mainstream idea. Restaurant stocks are getting hammered these days (with the exception of McDonald's (MCD - commentary - Cramer's Take), that is) as consumers rein in their spending. I believe that fast-food chains such as Wendy's will feel less pain and may benefit vs. casual dining restaurants with higher pricing points.

Wendy's recent merger with Triarc, parent of Arby's, resulted in a 10,000-plus-location fast-food empire, with sales in the $3.7 billion range. Shares have been in a free fall (down 70% from the 52-week high), and by my estimates, the current enterprise value is just $2.5 billion. I like the fact that the new combined entity owns more than 750 of its locations; that's a nice portfolio of commercial real estate to go along with what might again become a great business.

PICO Holdings (PICO - commentary - Cramer's Take): PICO is the mini-conglomerate I've referred to in the past as "the poor man's Berkshire Hathaway." This company owns a vast amount (460,000 acres) of Nevada land, two insurance companies in "runoff," a portfolio of publicly traded companies and a water resource and storage business.

The water business is what I am most excited about. Water in the ground, especially in the West, is an extremely valuable asset, and PICO owns a bunch. Shares are down 49% from their 52-week high, and this $464 million market-cap company has a stellar balance sheet with $165 million in cash, $229 million in long-term marketable securities and just $29 million in long-term debt.

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At the time of publication, Heller was long PICO and BWEL.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider PICO and BWEL to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.