Mark Perkins sends: Famous value investor Benjamin Graham wrote about the idea that greed and fear drive stock prices to extremes. Eventually, the economic realities and intrinsic value will correct the over-reactions of fear and greed. He said, “In the short-term the market is a voting machine, in the long-term it is a weighing machine.”

With the recent selling of US equities one has to ask, is the price the market is giving accurate over the long-term? Talking heads mongering recession and a special on CNBC about the anniversary of the 1987 crash make the economic world look bleak. The two industries that have been hated of late are housing and financials. Will some of the large companies in these industries weather the storm? Will the US economy survive another decade? The answer is Yes! and Yes! Here are some companies that are subject to the over-reaction but have good long-term prospects.

Housing-Related:
Home Depot (HD)
As you can see in a previous article on Home Depot, it and Lowe’s (LOW) are the two major forces in home improvement retail. The thesis behind Home Depot vs. Lowe’s is that Home Depot gives investors a better dividend (2.93%, compared to Lowe’s 1.22%) and trades at 58% of its 5-year average sales multiple and 67% of its 5-year book multiple. Home Depot will continue to grow and spin off plenty of free cash flow, and the company is committed to buying back tens of billions of its own stock. Such actions should reward long-term shareholders who recognize the value of the Home Depot brand and it’s enormous reach.

Financials:
Traders would like to stick a fork in even the best financials. I feel there are good opportunities in the smaller banks to be had but glaring ones in the blue-chips.

Barclays (BCS)
Diversified global powerhouse Barclay’s is best known for its wide array of ETF offerings, and now has a 6.23% dividend yield. I’d say they have some staying power too - the company has been around since 1690, a span of more than 300 years. I think this company has seen much worse, and can deal with a financial cycle.

Bank of America (BAC)
If you like dividends, BAC now has a 5.38% yield - a full 70 basis points above 30-year Treasuries - and what you could call a solid presence in the United States.

Washington Mutual Inc. (WM)
Washington Mutual is a big name in retail banking, card services, commercial and home loans. With a 7.7% yield after this weeks fall, a contrarian investor should take notice.

There is a good case for adding these companies at and below these prices to a portfolio that seeks long-term capital appreciation. As smaller and less diversified companies roll over and maybe even go bankrupt, these companies can keep their collective heads above water and at a minimum pay a flat dividend, meaning steady returns are there for the contrarian investor. As we emerge from the worst of the credit crisis in the near future, there is huge potential for capital appreciation in these stocks as traders realize these industries will boom again.

There is one person we can thank for these long-term bargains. Thank you to Mr. Market for making the work of a value-seeking, contrarian investor possible. Your bi-polar personality with euphoria that gives us highs never dreamed before also brings the scared, depressed lows we are seeing in some quality companies in two struggling but not extinct industries.

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