Bargain basement stocks worth buying

In bad markets, always bet on Buffett

In the aftermath of the failed bailout, the markets are still tumultuous, and most of us financial pundits are kept busy providing either commentary about the colossal lack of judgment on behalf of Wall Street and the federal government, or giving people advice on how to weather the financial storm. We’ve already discussed some of the storm-weathering steps you can take, but this time around we’re going to go a step further and discuss how you can take advantage of the market-wide decline in stock prices.

Invest now? Are you crazy?

If you’re like most people, risk-taking is the last thing you want to think about at this time. There’s no guarantee about any stock price or, for that matter, any company. Still, this is the best time to take a risk. The low prices of stocks mean that you can get bargains on companies that have traditionally been strong performers, and once the market recovers you can recognize a profit on these stocks, even if the prices don’t return to pre-marketing collapse highs. On the other hand, if Wall Street and the Dow completely collapse, you’ll have much bigger problems than your stocks not performing. So why not invest?

If you still need some persuading, consider this--Warren Buffett has invested money in Goldman Sachs, even though Berkshire Hathaway share price dropped by over $3,000. One of Buffett’s strategies is to buy shares in otherwise strong businesses that are financially distressed, and it works as well for a Wall Street novice as it does for a power player like Buffett.

A few diamonds caked with mud

In fact, let’s start with Goldman Sachs (NYSE: GS, Stock Forum). Its share price is still $80 short of its high of $200 during the summer, but Buffett’s investment in the company has caused other investors to take note, and the stock jumped by $7 as a result. This is at least partially the result of increased consumer confidence caused by Buffett’s investment, and we’d be willing to bet that Buffett’s support is going to snowball, leading Goldman Sachs to a recovery. At this point, Buffett is regarded as such a financial guru that his picks end up prospering because of increased consumer confidence. So go with the flow on this and take a chance on Buffett. You could put your trust in someone much, much worse.

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