Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com.


Amid all of investors' fortune-telling and hand-wringing over the direction of interest rates, inflation and stocks, it's easy to forget something important: Companies and individuals that don't borrow much don't get into a lot of trouble when rates rise. And when prices of debt-free companies decline anyway along with the broad market in a widespread selloff, it boosts investors' chances to buy them at a big discount.

That is why the most knowledgeable deep-value investors don't wring their hands during a decline like the one we've seen in the past month. They lift their hands and shout hallelujahs.

"The market is like a party for me now," said Matt Feshbach, chairman of MLF Investments in Florida. Feshbach, who takes very large positions in a handful of beaten-up companies and then helps management nurse them back to health, said he has been delighted to see his top prospects down by 40% or more lately. He was buying heavily last week, and he planned to do so again this week.

Selectively Cheap

Tom Kahn, who helps run $800 million at Kahn Brothers & Co. in New York, said Monday that he's not seeing a huge number of bargains "jumping out of the newspaper," so he believes that the market overall is not particularly cheap. But he does say that several of his favorite long-term holds are much cheaper now than they were at the start of the year, and he says he is glad to finally get a chance to buy them for new clients.

So what are these old hands looking at?

Let's start with Kahn, whose heritage goes all the way back to Benjamin Graham, the father of value investing. His father helped Graham with the research in his seminal book The Intelligent Investor while studying at Columbia University in the 1950s.

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 - Get Report), which is down 35% from its 2006 high; Audiovox ( VOXX - Get Report), which is down 20% in the past year; IDT ( IDT - Get Report), which is flat in the past year; and New York Community Bancorp ( NYB), 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 - Get Report).

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) or Philips ( PHG - Get Report).

With the growth Kahn sees on the horizon for Hologic, he doesn't believe the company will sell out until it's doing about $600 million a year in sales, or double the current rate. If that happens, which seems entirely plausible, the stock, now around $35, should go out for about $75 to $100 a share.

"The conversion to digital mammography is in the second inning of a nine-inning game," said Kahn, a longtime Yankees fan. He likes Chief Executive Jack Cumming a lot and notes that with rock-solid earnings ahead, no debt and a falling valuation, the company should be at the top of both growth and value investors' buy lists in a broad market decline.

More briefly, Kahn likes Audiovox because it holds $8 of its $12.25-a-share value in cash, has no debt and has several new sales programs in place over the next year that should boost the company back to profitability. He notes that Audiovox will be the leading importer and distributor of XM Satellite Radio ( XMSR) sets next year and also has a compelling new line of hi-fi equipment that fits the new digital lifestyle of MP3 players and home theater.

He likes IDT because it has $11.50 of its $12.70 a share in cash, is also debt-free and has been making strides toward profitability by reducing head count and finding ways to monetize its valuable wireless spectrum. Indeed, he says the spectrum alone, if the right deal is done, should boost the stock by at least $8 a share.

Kahn is willing to wait a long, long time for his views to take shape. But since he's got a deep portfolio of names like this, it seems that something is almost always perking up on different cycles. His firm's average $1 million account is up 16.4% a year since 1994, vs. 11.4% for the broad market. At that rate of compounding, your money doubles every four years before taxes. It's a great result for a manager with no real growth stocks.

If you'd like to hear three more real fast, here they are: He still likes 3Com ( COMS), which has half its $4.20 per share in cash and no debt, along with a strong new chief executive in Scott Murray; New York Community Bancorp, a very well run thrift that pays a 6% dividend yield and makes loans only to apartment-building developers, not homebuilders; and drugmaker Schering-Plough ( SGP), whose hidden asset is its underappreciated joint venture with Merck and a hard-working, imaginative chief executive in Fred Hassan.

Riverboat Gamblers

Meanwhile, down in Florida, Matt Feshbach is making a similar set of judgments on a different set of stocks. Two decades ago, he and his brother were known as notorious and very successful short-sellers, but they subsequently had a change of heart and used their same tools of intense forensic accounting to become big buyers on the long side of the market. They have done very well by being the lead institutional owner of Midas ( MDS) and other formerly broken-down assets, and they are now looking to do the same with a new crop.

Feshbach's favorite idea for the past couple of years has been cruise- and travel-services provider Ambassadors International ( AMIE), and his firm is now the top institutional holder with 19% of the firm. Ambassadors is the investment vehicle of former major-league baseball commissioner Peter V. Ueberroth and is run by his son. Because of some incredibly smart, low-cost acquisitions, the company is cheaper now than it was two years ago. That's when Feshbach began acquiring it, in part because it held almost 80% of the value of the company in cash.

Ambassadors is now focused on becoming the leader in the niche luxury river cruise and marina business. It bought America West Cruises, which plies the Columbia River in northern Oregon, in a liquidation sale for almost nothing and did the same recently with Delta Queen Steamboat, which runs cruises on the Mississippi and was in distress over losses in the wake of Hurricane Katrina.

Feshbach says Ambassadors can earn $2 per share by 2008, which would be more than double its current earnings power. Slap a 20 price/earnings multiple on that, and you have a $40 stock, which is almost double the current $23.80 quote.

Feshbach is looking seriously at three beaten-up retailers and a reinsurance firm, but he would not let me publish their names. He just stressed that his formula is looking at companies with a lot of cash that are going back to basics and are focusing on a core, profitable strategy. "It's markets like this where you make your money," he said.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Audiovox and Ambassadors to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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

Jon D. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback; click here to send him an email.