The Way of the Pig Farmer

Back in October, as the financial markets were melting down around our ears and the hedge fund liquidation trade was building to a crescendo, I recalled one of my favorite characters in all of financial literature: Mr. Womack, the pig farmer.

Introduced to the world by financial writer John Train in a 1978 Fortune magazine article entitled "How Mr. Womack Made a Killing," our stock-picking farmer was a wildly successful investor of the time who had a very simple formula. When the news was bad and everyone hated stocks, he drove to town to see his broker. He would buy a list of stocks that were financially sound, traded below $10 and paid dividends.

He bought stocks like he bought pigs for his farm. He bought when prices were down and no one else wanted any. As a bonus, according to Mr. Womack, pigs do not pay dividends! When the news was all cheery and wonderful a couple years later, he would drive back to town and sell them at huge profits.

Although this system seems to lack the finesse of modern portfolio theory and rigorous academic analysis, it worked very well for the man. I have used variations of it with a great deal of success throughout my career.

Right now seems to be a good time to revisit the Womackian approach and see what ideas we can find. I have a hard time putting together a bullish picture and a visit with the pig farmer seems in order.

During our last visit, the farmer approach looked at three stocks, and all three still qualify. CBS (CBS - commentary - Cramer's Take) and El Paso (EP - commentary - Cramer's Take) are pretty much even while Motorola (MOT - commentary - Cramer's Take) has fallen further, but all three can still be bought.

Another old favorite, Foot Locker (FL - commentary - Cramer's Take) is on the current list of cheap dividend stocks as well. The retail business is horrible as we all know, but the operator of more than 37,000 shoe and sports-related apparel stores is making all the right moves. Foot Locker has closed more than 100 underperforming stores and is reducing inventory levels, while adding the wildly popular Under Armor (UA - commentary - Cramer's Take) brand to 800 stores, which should help grow apparel sales. The company has very little debt and is still turning an annual profit in this difficult period.

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

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.