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Your Homework: Prep for the Market Turnaround Now

Editor's note: This was originally published on RealMoney. It is being republished as a bonus for readers. To subscribe to RealMoney, click here

One question I am frequently asked is why I spend any time looking for long ideas and discussing cheap stocks when I think the market is going lower. The answer is very simple: At times I am going to find stocks so cheap I want to own a little regardless of market outlook.

When I find a stock selling for less than net cash or way below tangible asset values, I want to own a little. History and experience have taught me that stocks such as Electro Scientific (ESIO - Get Report) should just be purchased regardless of what the market may do. Here you have a stock at half of book value, near cash levels, and with David Nierenberg as a substantial shareholder. I will take my chances relative to the market. My margin of safety is so large that I am comfortable owning it.

The other reason is that although I was politely asked to leave the local Cub Scout troop as a boy for various offenses involving firecrackers, pumpkins and a pack leader with no sense of humor, I do admire the motto -- "Be Prepared." I do think this market is going lower. The economic and financial conditions justify lower prices in my mind. I also have no idea how long it will take to work down to levels that would make me a buyer. It could just continue as we have so far in 2009 -- ticking down day by day. We may have a cataclysmic event that causes a steep one- or two-day sell off. The time to shop for a fire extinguisher is not right after you spill grease into an open flame. I want to be ready with a list of stocks with solid asset values and recovery potential.
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SCMR $0.53 3.92%
DAR $11.46 -2.50%
BSX $16.88 0.57%
ESIO $4.95 -0.20%
FRX $99.00 -0.77%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

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