My Top Three Value Picks for 2009 and Beyond

Equities are not dead, not by a long shot. Markets are correcting, times are tough, but there is money to be made. Forget financials for now, who, for the foreseeable future, will operate under extraordinary regulatory oversight. In choosing three investments to share with you, I applied the following filters:

1. Strong Balance Sheet (translated: no chance of getting wiped out)
2. Trading at significant discount to intrinsic value
3. Able and competent management
4. Presence of value creating catalyst
5. Potential of 100% upside within two years

As markets continue to decline, the opportunities increase, but here are three ideas worth a look.

Incidentals Always Sell

Many investors might be surprised to know that the best-performing stock in the history of the Dow is what is now called Altria Group (MO - commentary - Cramer's Take), formally known as Phillip Morris. From 1957 to 2006, Altria delivered an annual rate of return of 19.88%. Philip Morris was actually the best-performing company since 1925, returning 17.2% a year, beating the market by 7.4% per year.

My first idea is not Altria, although it's not a bad place to park some cash in this tight environment. However, this company does sell a product that people buy over and over again during any economic environment: spirits.

Central European Distribution Corp (CEDC - commentary - Cramer's Take) is the largest producer and supplier of vodka in Poland, and is rapidly taking market share in the Russian market, two countries that are top consumers of vodka in the world.

In addition, CEDC has exclusive distribution rights to import beer, liquor and wine brands throughout Poland like Anheuser Busch's (BUD - commentary - Cramer's Take) Budweiser, Guinness beer, Jim Beam, Crown Royal, and so on. I wrote about CEDC a couple of weeks ago when shares were trading at $20; today the company trades at $28, which is still a good bet. Here's why.

The craziest thing to do in this market is take recent earnings and add a multiple to it. You have to stay away from those kinds of assumptions -- things that look cheap on the basis of peak earnings. Today, CEDC trades at a P/E of 12, and its earnings have grown even since the last recession in 2001. The company sells a product that has enjoyed constant growing demand for centuries all over the world.

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At the time of publication, Gad had no positions in the stocks mentioned, although positions may change at any time.

Sham Gad is the managing partner of the Gad Partners Fund, a value-centric investment partnership modeled after the original 1950s' Buffett Partnerships. Previously, Gad was a writer for The Motley Fool and a securities analyst for UAS Asset Management, a small, value-focused fund in New York City.

Gad also runs a value investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Gad is working on a value investing book (title forthcoming) to be published by John Wiley and Sons in the summer of 2009. Reach Gad at [e-mail].