What to buy?

Cooperman presented Atlas Pipeline (APL:nyse ) as one of his favorite ideas of the moment. [Editor's note: Chris has recommended this stock to the subscribers of his investment letter, Capital & Crisis]. Atlas is a natural gas pipeline company. It owns 1,600 miles of pipeline connected to nearly 6,000 wells and is adding over 800 new wells per year. It also operates a growing interstate pipeline system in the Fayetteville Shale.

These are low-risk assets, and Atlas continues to increase its dividend every year. Cooperman expects Atlas to increase its dividend for years to come, given the prime location of its pipelines in Appalachia.

Atlas will pay about $4.25 next year. It closed yesterday at $21.70. That's good for a yield of 17.7%! As Cooperman said, "At my age, a dividend yield like that is better than sex, but that's just me."

Cooperman thinks APL is worth at least $46 per share, which is close to where my numbers come in. (Hence, my "buy up-to-price" of $48 per share, which, admittedly, is sort of comical now with the stock at $17).

Comparable master limited partnerships (or MLPs) yield about 12%. As Cooperman said, he can find no reason why such a discrepancy exists. The market has completely trashed the MLP universe in general. Cooperman offered two reasons for this. The first is that these investments were popular with hedge funds that would borrow cheaper money and park it in higher-yield MLPs. The market sell-off forced many of these hedge funds to sell out of these investments.

The second is that since the credit markets are locked up and MLPs need access to capital to do "transformational acquisitions," as Cooperman put it. The market thinks growth rates here are dead. As Cooperman pointed out, at a 17% yield, you don't really care about growth. Even so, Cooperman thinks APL will continue to grow at low single-digit rates without access to capital, as more product passes through its existing pipelines.

Another old-timer, Seth Glickenhaus, now 94 years old, also likes the pipeline companies. (There was a nice article about him in The Wall Street Journal last week: "A Street Longtimer Speaks," by E.S. Browning). He's the chief investment officer at Glickenhaus & Co., which manages $1.8 billion. (The longevity of the value crowd is always inspiring. You don't see in-and-out traders still working it in their 90s.) Glickenhaus told the Journal, "We like pipeline stocks with good yields and stable businesses."

Pipeline stocks are at lows we've never seen when you look at the yield they pay versus what you get in Treasuries. APL, in particular, is one of those statistical anomalies that exists in this fear-ridden market. It's really remarkable. I enjoy reading old financial books, especially by observers and practitioners at the time. I've recently been rereading Ben Graham's Security Analysis because McGraw-Hill published a sixth edition with new commentary by great investors, including Seth Klarman and Bruce Berkowitz.

Anyway, I love how Graham finds these little anomalies and writes about them in his book. Take Wright Aeronautical in 1922. Graham points out how it was an $8 stock earning $2 per share and paying out $1 in dividends. That was a P/E of 4 and dividend yield of 12.5%. Plus, the company had $8 of cash in its treasury and no debt. Graham, in his usual understated way, writes, "Analysis would readily have established that the intrinsic value of the issue was substantially above the market price." Yeah, I'll say! (By 1928, the stock was $280 per share -- a 35-bagger.)

I used to read Graham and think to myself, "Wow, imagine finding bargains like those!" Well, it's not hard to find things like that today. We have crazy valuations on the back page of my investment letter. Seaboard (SEB:amex ), which we added just days ago, has dropped more than 20% in five trading days. It goes for 6 times earnings and less than tangible book, which is probably understated. Lots of stocks on our back page go for valuations we've not seen in many years.

For example, Nabors (NBR:nyse ), the premier land driller, goes for 5 times earnings, 4 times next year's guess and less than book value. Then there's Gulfport Energy (GPOR:nasdaq ), which looks very cheap even at $80 oil. It goes for less than 5 times trailing earnings and less than stated book value, even though it owns a number of investments not reflected in that.

It's that kind of stuff that's out there now…

There was a telling anecdote from Aaron Edelheit, another money manager that spoke at the conference. He said a friend of his who runs a pool of money for a big hedge fund got a call from his boss the other day. "Hit the bid on everything you own," he was told. In other words, whatever people were willing pay for his stocks, he was instructed to sell. That's not rational selling. That's "get me out at any price" selling.

I bet that's going on across the spectrum of money managers. And that explains why, I think, we see some of these valuations.

But if you don't have to sell, I think you hang on and ride it out. If you have some cash you can afford to risk, you are one of the lucky ones, because there are some bargains out there today. Look at Warren Buffett. He's as active as we've ever seen him, buying things left and right.

The market is full of fear right now. Just keep in mind that it looks like we're in for some hard times. Yesterday's moon shot notwithstanding, it may take awhile before we see sustained gains, even on very cheap stocks. Also keep in mind that the investors who made really big money in stocks did so over time. They were patient. Nearly all the rich and successful investors I've studied held their stocks for years.

I know it's very hard to look at your portfolio and see all that red. But it's important to keep your eye on the long term. Many of our investments still have bright futures and long-term tail winds. I don't think the energy, infrastructure, water and agricultural themes we've covered are dead. There are long-term needs behind all of these things and a 40%-plus drop in the market doesn't change that.

Hang in there.