Bargain-Hunters' Faves

Kahn said he focuses on balance sheets strong enough to provide a real margin of safety. In plain English, that means he likes debt-free companies that have a lot of cash and are not affected by interest rate swings. If they have fallen on hard times recently and are not profitable but have catalysts on the horizon that could help them turn profitable, so much the better.

His top four choices now are Hologic(HOLX Quote), which is down 35% from its 2006 high; Audiovox(VOXX Quote), which is down 20% in the past year; IDT(IDT Quote), which is flat in the past year; and New York Community Bancorp(NYB Quote), down 40% in the past two years.

Hologic, down 7.5% on Monday alone, might be the most interesting of the bunch. It is debt-free and very profitable. Based in Massachusetts, it develops and makes medical imaging systems for women's health care and also distributes complementary products made by partners. It's best known for its digital mammography machines, and it just recently purchased computer-aided diagnosis software maker R2 Technology and breast-biopsy system maker Suros Surgical. That makes it the leader in the fast-growing business of digital radiology, which helps doctors make faster diagnoses at lower costs.

A major catalyst on the horizon is its foray into digital tomosynthesis, which provides oncologists with a three-dimensional view of the breast, permitting more precise examination before surgery. It's in beta testing now with several major hospitals around the country and is up for approval from federal regulators early next year. If all goes well, it will be on the market late next year. This is expected to be a huge cash generator for Hologic, as its only competitor with a similar machine is General Electric(GE Quote).

Most strong medical-device companies are eventually bought out by industry heavies at seven to eight times sales. GE can't buy Hologic because of antitrust issues, but it could easily be bought by a European tech giant such as Siemens(SI Quote) or Philips(PHG Quote).