This Nightmare Is a Stock-Picker's Dream

In the 15 years that I have been analyzing stocks and industries, I have seen only four or five occasions that were truly momentous for stock-pickers. This is one of them.

For long-oriented stock-pickers who find good companies at great prices, many market environments are hard to navigate. The bubble of 1998-2000? Most stocks rose, sharply rendering individual stock selection less meaningful. The recent boom in energy and agricultural stocks? Better served by the momentum crowd. The recent plunge in those groups? Fodder for short-sellers.

But right now, you are looking at hundreds of well-run companies with strong brand franchises, stellar balance sheets, market-leading positions -- and really cheap stock prices.

To me, this feels just like 2002. There was no reason to buy stocks, except that they were cheap. If you did, you might have doubled or quadrupled your money in names such as EMC (EMC - commentary - Cramer's Take), Priceline.com (PCLN - commentary - Cramer's Take) or Amazon.com (AMZN - commentary - Cramer's Take). And that's just one sector.

Sure, these kinds of stocks might remain cheap for a while to come. And it's fair to ask why you should buy them now. After all, multiples can compress further. An old broker once told me, "We were thinking that a P/E of 7 or 8 on some blue chips in the early 1970s were great bargains, until they traded down to 5-6 times earnings."

Looked at another way, those same stocks eventually rebounded to trade for 15, 20 or even 25 times earnings. When the world returns to normal, you won't be able to buy Home Depot (HD - commentary - Cramer's Take) for the equivalent of five times normalized earnings. (That is to say that Home Depot will eventually rebound to earn $5 a share in profits.)

I cite Home Depot because the company is profitable (even in a housing depression) and has loads of cash and no debt. Can shares fall from the current $25 to $20 in the next six months? Yes. But I also believe they will trade up to at least 12 times normalized profits when business returns to normal levels. That makes it a $60 stock at some point in the next few years, by my math.

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David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.