Shop for Blue-Chip Names at 1981 Valuations

So start throwing darts at the U.S. oil majors. The market seems to have forgotten that big oil companies still make money when oil is at $50 to $60 a barrel. My favorite pick here is ConocoPhillips (COP - commentary - Cramer's Take), a business I have touched on recently. Warren Buffett, we just found out, is quite high on the company: Berkshire Hathaway (BRK.A - commentary - Cramer's Take) just reported owning 84 million shares, up from 17 million in March. And at today's price, your cost basis is more than 10% lower than Buffett's.

Today, COP trades at less than 4 times earnings and less than 6 times forward earnings, and it pays you a 4% dividend yield. This is an abnormally high yield for such a stable business. Compare that with Exxon Mobil (XOM - commentary - Cramer's Take) at 8 times earnings yielding 2.2% or Chevron (CVX - commentary - Cramer's Take) at 6 times earnings yielding 3.6%.

That's right, I'm telling you to take a pass on a major oil company selling at 6 times earnings and a yield of 3.6% so you can buy another for 4 times earnings and a 4% yield. These stocks are cheap, no matter how you look at it.

Just to give you an idea of how cheap and profitable Conoco is, last year it pulled in nearly $12 billion in profits selling oil at an average cost of $67 a barrel. Today's market value is $69 billion.

I've heard that of every dollar spent anywhere, a penny finds its way to General Electric (GE - commentary - Cramer's Take). So whether you're shopping at Wal-Mart (WMT - commentary - Cramer's Take) or dining out, odds are that GE makes a product or offers a service that touches your day-to-day living needs.

At $16 a share, GE now sells for 9 times forward earnings and sports a 7% dividend yield. While there are concerns about its finance unit, those fears are over-discounted in today's share price. The company's other assets have tremendous value, and the last time the dividend was 7% was never. The company announced that it would keep its dividend static at $1.24 in 2009, but even if the company decides to cut by 50%, you're still getting a 3.5% yield for the most iconic company in the world.

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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].