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As the market plunged to new depths last November, it proved to be a great time to run screens to see which stocks were oversold in relation to their balance sheets and income statements. Many of the most deeply discounted names from that period had the most aggressive snapbacks when the market rallied into the new year. With the market in another tough phase in the first two months of 2009, it's time to revisit that approach.

One of the greatest tests of support for a stock is a company's tangible book value. For this screen, I went looking for stocks that now trade for no more than 1.2 times tangible book value. Can a stock fall below tangible book? Sure, but in time, they tend to rebound to at least the 1.0-1.2 times book value level.

Of course, book value will erode if a company is losing value, so I narrowed the list to only those companies that are expected to stay profitable in 2009. In theory, further profits should boost book value even higher. I also wanted to be sure that these stocks were liquid enough to garner strong institutional support when the market turns.

Right now, many hedge funds are going out of business, and second-tier research departments are shrinking, and these two groups have often been the pillars of support for less liquid stocks. So this list includes only stocks that trade at least 1.5 million shares per day.

As a final screening variable, I looked for companies with at least $150 million in net cash, so any upcoming debt payments can be handled without stress.

With the list in shape, I thought it would be helpful to see how these stocks trade in relation to their "normal" earnings strength. That means looking back to 2007, when earnings and margins were more in line with historical norms. Will we ever return to "normal?" Yes. A wide range of industries are purely cyclical, and their peaks and valleys look fairly predictable over a longer time horizon.

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But stock selection remains vital, as the pair of retailers on the list tells us. Right now, people may hold off buying new footwear, and that is crimping sales for

Foot Locker

(FL) - Get Report

. But shoes and sneakers wear out. They are not luxuries but necessities. So in time, sales and profits for Foot Locker should rebound. In advance of an eventual rebound, shares trade for just 0.6 times tangible book value and less than five times "normal" earnings.

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Yet, it's hard to be equally sanguine on the prospects of the retailer

Abercrombie & Fitch

(ANF) - Get Report

, which is much more beholden to the fickle tastes of teens. The retailer has held up fairly well in this downturn, and analysts believe EPS could still approach $2 this year, but the stock shouldn't be viewed as purely cyclical.

Other stocks on this list can't be viewed through the context of cyclical earnings and instead are pure "balance sheet plays."



trades pretty much for its cash holdings and is not given much credit for the value of its holdings, such as Ask.com, Citysearch.com, Match.com, CollegeHumor.com and the Daily Beast (which is quickly gaining traction as a rival to the Huffington Post).

Ideally, you can find a stock with a defensive valuation (at or near book value) that is cash-rich and poised for significant upside when the market improves. That would appear to be the case for

Ensco International


, an oil driller that will likely have little good news to report when earnings hit the wire this Thursday, Feb. 26.

This is a lousy time for the energy sector, with prices low and drilling activity falling fast. But Ensco is still expected to stay nicely profitable through this downturn. Analysts say the company can earn more than $7 a share this year, but you should assume that the forecast may be too aggressive. Management may well dampen the profit outlook later this week, and that could push shares below the 52-week low. But even if per-share profits only end up at around $3 to $4, then shares sport a reasonable 6 to 8 times earnings multiple on that lowered forecast.

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Energy watchers say that later this year, the sharp production cuts will set the stage for rising energy prices. And that should set the stage for the next cycle of rising drilling activity. And in that phase, Ensco looks positioned to again generate $6 to $8 a share in profits, which looks pretty good for a stock trading in the mid-$20s. And for a stock already trading below tangible book value, it seems unlikely that any near-term pressure on the stock due to the imminent earnings release will be short-lived, because of that balance sheet strength.

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David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.