Ugly Stocks With Pretty Returns

Investment guru Warren Buffett began his career by buying inferior businesses trading at statistically low valuations. This approach was coined the "cigar-butt" investment approach. Regardless of the quality of the business, the price was so attractive, Buffett reasoned, that all one needed was just one free puff from the cigar butt and then it could be discarded. It wasn't until decades later that Buffett made the transition from this short-term investment approach to his preference for buying names like Coca-Cola (KO) and holding them "forever." 

Despite a relatively strong market environment, plenty of stocks that have fallen to cigar-butt status. Prices have dropped so dramatically that these names need nothing more than one good quarterly news report or a change in business sentiment for the prices to pop by 10% or more. Just look at Research In Motion (RIMM), which had fallen to around $6 from more than $60. In the past few weeks, shares have nearly doubled. With the benefit of hindsight, it's easy to tout that RIMM was a screaming buy when it was trading for $6 to $7 and with a well-known investor such as Prem Watsa of Fairfax Financial Holdings as a huge investor.  ...428 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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