Upside of economic downturnsWe could ruminate all day about the negatives of economic downturns. But that wouldn't make us any money. Instead, let's focus on the ways that hard times actually help the economy.

If you're an investor willing to look through the short-term uncertainties, now is the time you'll find opportunities that simply weren't around during the boom times.

The Tale of a Cheap Makeover

Back in 2008, Steak n Shake, a well-known Midwestern burger and shake brand, was on the verge of going out of business. Reckless expansion produced a horrific balance sheet and a burn rate of $100,000 per day!

Ultimately, an activist investor named Sardar Biglari took over and righted the ship. Despite taking over during the Great Recession, he performed a remarkable turnaround that benefited the company, its employees, and certainly its shareholders. While you may have missed the Steak n Shake turnaround, it's not too late to benefit from Biglari's magic touch: His sights are now focused on Cracker Barrel (CBRL). His holding company, Biglari Holdings (BH), owns 9.3% of the shares and is fighting for a board seat.

If Biglari wins, you can bet there will be big changes, including slashing of management perks and compensation. (Current CEO Michael Woodhouse won't go down without a fight. Would you if you earned total compensation of more than $30 million from 2007 through 2010?) It's realignments like this that can put money in shareholders' pockets.

Big Changes in Banking

Another opportunity for opportunistic investors is in banking.

As of Sept. 9, 71 banks had failed so far this year. Those closings are painful but essential to the healing process.

The closings involve the transfer of assets from troubled and poorly-run institutions to stronger and better-run entities. While many banks are facing a case of merger indigestion, the best are making solid progress toward a very profitable future. For investors, this should result in rising dividends (nice inflation hedge), as well as increased multiples on their earnings.

Back in the good old days, you could buy a little community bank at book value and wait for it to be acquired at a premium. In the meantime, you could collect a healthy dividend. Now investors are better off going with the big banks. Their massive scale and low cost of funds make them big bargains among a gun-shy group of investors.

Two that seem attractive are Wells Fargo (WFC) and Bank of America (BAC). While both have considerable exposure to mortgage fallout, each offers a compelling case for investors. Wells Fargo is a better-run organization with a history of excellent customer services and retail expertise. Bank of America has more compelling challenges and is priced accordingly. But B of A recently received a jolt of confidence in the form of a $5 billion loan from Warren Buffett. The best part of the deal is that it includes warrants to purchase 700 million shares of B of A stock at $7.14.

If those investments seem too risky, why not load up on Berkshire Hathaway (BRK-B)? This venerable institution is cheaper than it's been in years, priced at just over book value and growing at 8% to 10% per year. As they say, you're getting the best investor the world has ever known, for free. Now that's a deal! See? Times aren't so bad after all.

Motley Fool contributor Buck Hartzell owns shares of Berkshire Hathaway and Biglari Holdings, and warrants in Wells Fargo. The Motley Fool owns shares of Biglari Holdings, Bank of America, Wells Fargo, and Berkshire Hathaway, and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway.


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Nallene

This is a must read site... you have to prepare yourself and your loved ones before it's too late.

HOW TO PROFIT LIKE THE ULTRA-RICH DURING TIMES OF ECONOMIC CHAOS!
*** globaleconomicwarning.blogspot.com ***

September 23 2011 at 2:09 PM Report abuse rate up rate down Reply
agt4085

We are all witnessing the largest global investment scam in the history of the world. The entire global stock system is an overvalued diluted scam for the wealthy to skim the top of all its value and leave the garbage for the idiots you think theirs a way to actually make money thru investing. Every company in the world is over valued by 5 to 10 times its actually asset worth. In 10 years there will no system left that isn't a scam on the planet. Theirs a reason these little tiny countries like switzerland, Luxembourg, belgium, united arab emirates and austria. With many new small countries in the future. They have no social issues do to their size. The rich run their businesses out of these countries like their a monarchy. Which is what we will all be part of in the future. These tiny little countries that could be destroyed economically or militarily in 2 days have all the power in the world with more power to come as more money moves into their banks. These are all people who don't understand the social needs of trying to run the one world government they have created.

September 23 2011 at 10:14 AM Report abuse +1 rate up rate down Reply
agt4085

We are all witnessing the largest global investment scam in the history of the world. The entire global stock system is an overvalued diluted scam for the wealthy to skim the top of all its value and leave the garbage for the idiots you think theirs a way to actually make money thru investing. Every company in the world is over valued by 5 to 10 times its actually asset worth. In 10 years there will no system left that isn't a scam on the planet. Theirs a reason these little tiny countries like switzerland, Luxembourg, belgium, united arab emirates and austria. With many new small countries in the future. They have no social issues do to their size. The rich run their businesses out of these countries like their a monarchy. Which is what we will all be part of in the future. These tiny little countries that could be destroyed economically or militarily in 2 days have all the power in the world with more power to come as more money moves into their banks. These are all people who don't understand the social needs of trying to run the one world government they have created.

September 23 2011 at 10:13 AM Report abuse +1 rate up rate down Reply