Top 10 for 2009: The Final Five

If you live long enough -- like another century or two -- you might see another market like the 2008 disaster. We witnessed action you'd expect to see in an emerging third-world country, not in the market of a mature superpower.

The Russell 2000 -- an index that could be considered a proxy on America's future -- was heaved overboard, dropping 50% in only 45 trading days (ending on November 20). A decline of that magnitude is impossible, right? Apparently not.

Against the bewildering backdrop of 2008, it's perfectly understandable if you view 2009 with trepidation. It's tough to have confidence in a market after seeing companies worth tens of billions of dollars vanish overnight. How can you get comfortable when price volatility is the worst since the 1800s?

In spite of it all, I've got good news for you. While it's difficult to measure market value in the aggregate for indices like the S&P 500, on a case-by-case basis there are scores of once-in-a-lifetime opportunities in the market.

Here's my admittedly overly simplistic recipe for how to find these bargains -- call it the slice-and-dice approach. When you build a spreadsheet for a particular company, chop 15% off sales, then carve a chunk out of operating margins while simultaneously fattening up SG&A expenses. Slap a price-to-earnings ratio of, say, 10 on net income and compare that to the stock value. If your estimate is 100% higher than the stock value, congratulations, you've found a bargain.

While valuation analysis is more complicated than that, the above illustration is not that far from reality. Even after you severely pinch operating expectations, you can still find bargains that'll make you weak in the knees. They come, however, with the proviso that you have to be patient. The easy two- and three-baggers will likely require holding periods of at least one year and maybe longer.

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At time of publication, Alsin and/or ACM was long MWA, EXPE, KMX, ODP, HAR, USG, DELL, WMT, AAWW and BCO, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, a California-based investment adviser. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback; click here to send him an email.