Shop for Blue-Chip Names at 1981 Valuations

It's not often that you are offered an opportunity to acquire the creme de la creme of American industry at cheap prices. It's even rarer to find these companies at the bargain levels that some are fetching today. Only a crisis of great magnitude -- which we have today -- can allow this to happen. The overall percentage of stocks trading at single-digit price-to-earnings ratios today is 61%. The last time the proportion was this high was in the 1980s.

The U.S., unquestionably the deepest and most advanced market in the world, is cheap. And I mean cheap on the basis of historical earnings cycles, which include both peak and recessionary business cycles. It's foolish to value businesses on the basis of the peak earnings of the past several years.

In the case of some great blue-chip names, stock prices have already discounted earnings declines for 2009 and then some. The added precipitous decline is due to the withdrawal of over $150 billion from equity funds in September and October and the avalanche of sales from hedge funds that were forced to de-lever. But if you believe, as Warren Buffett does, that many companies will be earning record profits in several years, now is the time to think about making a very good bet on America.

Odds are quite good that you could invest in any of the biggest and strongest blue-chip-type companies today and be richer in a couple of years. But several names stand out from the rest.

Regardless of the current price of oil, several years from now the world will need more of it. While total oil consumption in the U.S. will decline this year, the rest of the world is just getting turned on to oil. China's uses around 8 million barrels a day compared with 19 million barrels per day in the U.S.

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At the time of publication, Gad was long BRK.A and COP., although positions may change at any time.

Sham Gad is the managing partner of the Gad Partners Fund and the Gad Partners Offshore fund, value-centric investment partnerships based in Athens, Georgia. Gad has written extensively for the Motley Fool and was a securities analyst for UAS Asset Management, a small, value-focused fund in New York City in 2007. Previously, Gad managed assets for the Gad Investment Group. For additional information, please visit www.gadcapital.com.

Gad also runs a value-investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Send Sham Gad an email. You can reach Gad at [e-mail].