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Melvin: Specific Stocks for a Frightening Market

Alpha and Omega Semiconductor (AOSL - Get Report) is struggling along with the economy as well. The company makes chips used in batteries, smartphones, computers and gaming systems. The shares fetch just 70% of tangible book value, and this company also has more than half of the share price in cash. The company has done a solid job of increasing shareholder equity over the past few years and should see strong results in a better economic backdrop.

I included all the resource and mining stocks we have talked about in the past few months. If we ever do have an economic recovery, and I am confident that at some point in the next few years that we will, then we will need the companies that dig stuff out of the ground and provide the basic materials. I include Resolute Forest Products (RFP - Get Report), Pan American Silver (PAAS - Get Report), Cliffs Natural Resources (CLF - Get Report) and Arcelor Mittal (MT - Get Report) in the group.

While some of those are foreign, they are not part of a maximum-pessimism trade such as I have suggested in Brazil and European banks. All of them are very cheap on a price-to-tangible-book-value basis. I am aware that if the economy does collapse, so will these stocks, but I am more than willing to buy more at a deeper discount.

I still like Brookfield Properties (BPO) as well. It is rare to be able to pay a portfolio of global world-class real estate at this type of valuation, and I feel that this could be a huge winner for over time. The market is too focused on the space that Brookfield has to lease in Lower Manhattan and is not looking at the quality of the portfolio of premier office space around the world.

In spite of the space available in New York, the overall portfolio is 91% leased, and Brookfield is renewing many of its leases at higher rates. Trading at 70% of tangible book value, this REIT is too cheap not to own, in my opinion. The company should close on its acquisition of MPG Office Trust in this quarter, giving it a nice chunk of the Los Angeles skyline at a very good price.

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