Last year I wrote a very positive Chasing Value article suggesting that USG Corp (NYSE: USG) looked like a value proposition when it was trading around $52 a share. We bought it and to say we were way too early would be very very kind because it dropped with the market in the summer and has only recovered slightly.

Even worse, Alan Greenspan and Ben Bernanke are finally talking about a recession and USG is still laying off more workers, attempting to balance labor and product demand in a weak housing market and soft economy.

Berkshire Hathaway (NYSE: BRK.A) is still the largest shareholder, owning over 17% of the outstanding shares. Most of what I liked last year holds true but the depth of the economic downturn shows little signs of improvement. Housing and most related construction service industries are just trying to survive. They have all cut back production.

There is little consensus when the economy might start to show significant signs of improvement, but there are few people who think it will be soon, and I have spoken with many in the business community who think it will be 18 months at least. However, timing the market is always difficult so I believe that the best you can do is try and buy solid companies on the cheap. The difficulties that USG is weathering now will turn into strengths in the future as it streamlines the enterprise, reduces debt, and plans for the future.

The discussion of USG in terms of value should not be hard to understand. Besides Warren Buffett's large stake in the company, it should also be noted that value investor Fairholme Capital Management, L.L.C, lead by Bruce Berkowitz the long time managing member and portfolio manager, is the second largest shareholder with almost a 7% stake in the company.

The stock is not among the common types of companies I would include among my recommended watch list. Although it has a low P/S of 0.66 (under one is favorable) and a low P/B of 1.61, it is losing money and currently has very low profit margins. It also pays no dividend, so this one is not for everybody.

You can see from the chart that USG is trading around the same price it was three years ago before the housing market went nuts. When I bought it around $50 there seemed to be some pricing stability but that was just the calm before the storm. I do not know when the housing market will recover but I think it will not get much worse. We will continue to see defaults and meager construction starts but not further collapse.

When the turnaround comes, the stock market does not usually send out formal notices, nor do I recommend tea leaves, fortune cookies or palm readers, so your best bet, if you are interested, is to buy a few shares now and a few shares later and ease into this boring company. If you do, you will be in good company. The shares closed up yesterday at $37.67 and is up further in trading today.

For those who do not have the resources to dollar cost average into this stock and do not have any interest in riding a stock with zero yield, patience is the order of the day. Perhaps it will test its lows again and an even better opportnity will arrise. There are no must own stocks.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B and USG.

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Earlier in the week I posted about finding the market bottom using that age-old handheld calculator, a white paper napkin. So, unfortunately it looks like I may be right again. Not exactly something I was hoping for, but if it has to be, it has to be. I wonder if my old napkin can outperform Wall Street super computers?

Is this an auction to the bottom? Are investors bidding things down instead of up? Looks like it from all the negative sentiment. Consumer sentiment is down, and short sellers are all excited, increasing their negative positions to new highs every day.

And here is the all-telling sign of capitulation: the ever-lying overly optimistic government is starting to admit how bad things are and throwing hundreds of billions of dollars at the problem. When does the turnaround come?

That's easy: when President Bush reverses his position from last week and states that yes, we may be in recession; followed by the least experienced investors stomachs churning while they bail out totally.

So let's look on the good side. This means all you true value investors should have your watch lists in hand as "my pal Warren" and I do (and Dan and Greg and Mr. Noital) because the bargains are going to come fast and furious as we approach the Dow at 11,000. Let's also not forget about stimulating production, as I've already written about in Serious Money.

Oh, by the way, this morning's short-lived uptick was just a few bottom fishers getting excited...but there is more to come.

A few things from my watch list:

• Anadarko Petroleum (NYSE: APC)
• Anglo Amer ADR (NASDAQ: AAUK)
• Bunge Ltd. (NYSE: BG)
• Diageo plc (NYSE: DEO)
• General Electric (NYSE: GE)
• Intuitive Surgical Inc (NASDAQ: ISRG)
• Raytheon Company (NYSE: RTN)
• Reliance Steel and Aluminum (NYSE: RS)
• Tiffany and Co (NYSE: TIF)
• Under Armour'A' (NYSE: UA)
• Valero Energy (NYSE: VLO)
• Wells Fargo (NYSE: WFC)

Many of these are already bargains, but they will go lower. There are many more quality companies out there, and the lower the market drops, the easier it is to find them. Surprising as it may seem, when the market gets oversold, almost everything is a bargain. That being the case, load up on companies that pay dividends with quality products, good cash flow, low debt and of course...quality management.

Final Update: the DJIA closed at 11,893.69 -146.70 (-1.22%)

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I currently own shares in APC, AAUK, ISRG, MRK, and VLO.

...and for a special treat: Ode to TECH-bubbles: YouTube at its best!

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According to an ominous story on Bloomberg.com this morning, the recession is already here. It makes the argument that in many sectors of the economy, corporate profits were severely depressed in the third quarter.

In order to protect the bottom line, many companies have announced wholesale lay-offs in the tens of thousands. They are looking to every department to cut expenses and staff and often just eliminate entire departments. There is no doubt that this shake-out is happening because a day has not gone by in the past six months that we have not read about the falling dominoes of the economy.

The housing market, which was ripe with speculators and dreamers (of home ownership or huge profits) fueled by cheap financing which has disappeared, is now in full retreat. The depressed housing and credit markets were the first to show signs of weakness, followed by mortgage lenders who did not have to announce lay-offs, they just closed their doors. The home builders are not building, and the suppliers like Lowe's Co. (NYSE: LOW) and Home Depot (NYSE: HD) on the retail end and Caterpillar (NYSE: CAT) and USG Corp (NYSE: USG) on the wholesale end are feeling it.

But everything may not necessarily be as bad as it first seems. For example, the Bloomberg report states that, "Corporate profits, as measured by the Commerce Department, fell at an annual rate of $19.3 billion in the third quarter from the second, as domestic earnings dropped by $41.2 billion." They use these figure to support the case for recession. I wonder how bad that really is. I do not profess to be an expert on the subject but Berkshire Hathaway (NYSE: BRK.A) has that much in cash on hand, and Microsoft (NASDAQ: MSFT) is not far behind. What is the real impact of those figures in a multi-trillion dollar economy?

Should we just sell everything, convert our assets to gold and find a cave to hide in until the whole thing blows over? Of course not. I would not for one moment suggest that an economic slowdown is not upon us. However, I would suggest that this swinging of the economic pendulum will not be universal and will not hit every industry equally.

I made the mistake of favoring financial stocks way too early and paid a heavy price -- and it is still too early. The banking industry itself does not know how bad things are yet and may not for a year. So where to put your money? The sectors of the economy that will stay afloat in the economic storm -- no secret here -- are the same as always: health care, consumer staples, utilities, defense and perhaps insurance companies that receive regular premiums and have not dabbled in the credit markets too heavily. Of course BRK.A and MSFT will be able to ride out any storm because they were built for that purpose.

To find potential opportunities and verify my track record, read Chasing Value or Serious Money.

DISCLOSURE: I currently own shares of BRK.B, and USG.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

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Furniture Brands-(NYSE:FBN) markets residential furniture through Broyhill Furniture, Lane Furniture, Thomasville Furniture and HDM Furniture. FBN is recently up $3.30 to $13.44 after Samson Holding reported a 14.9% stake in FBN. Samson has indicated it may seek to acquire control of the company. FBN reported June 2007 quarterly total revenue of $535 million. FBN will host an investor day on 10/23 in New York City. FBN October option implied volatility of 54 is above its 26-week average of 35 according to Track Data, suggesting larger price risk.

USG-(NYSE: USG), a manufacturer and distributor of building materials, is recently up $.57 to $38.14 on renewed & unconfirmed takeover chatter. Unconfirmed chatter is circulating today that a consortium of four of the largest Chinese construction companies wants to acquire a 24% stake in USG. China Overseas Land is one of the names mentioned in the consortium. Warren Buffet is an owner of approximately 19% of USG. USG October 40 calls have traded 72 times on transaction volume of 2,103 contracts above its open interest of 2,013 contracts. USG October option implied volatility of 42 is above its 26-week average of 32 according to Track Data suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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This is the fourth update on the stock price status of the first seventeen Chasing Value companies. Closing prices are from September 14, 2007.

The first quarter produced amazing results but the second quarter was downright sad. No one will be surprised to see that anything touching constuction or finance took a bath. I own most of these stocks, so if you do too, I feel your pain. Anyone considering my commentary should "do their homework" too, as James Cramer says on his Mad Money TV show. These recommendations are from the first and second quarter 2007 and I have linked to the original stories.

February 16, 2007: Chasing value: Wells Fargo: Wells Fargo & Company (NYSE: WFC) closed at $35.66 down from $35.76: a loss of -0.02%, even money.

February 23, 2007: Chasing value: Anadarko Petroleum - got it! Anadarko Petroleum Company (NYSE: APC) closed at $50.58 up from $40.84: A gain of 23.85%.

March 3, 2007: Chasing value: Aluminum Corporation of China ADS: Aluminum Corp. of China (ADS) (NYSE: ACH) closed at $60.95 up from $22.98: A gain of 165%

March 20, 2007: Chasing Value: Anglo American - Inflation hedge & more: Anglo American plc (NASDAQ: AAUK) closed at $28.90 up from $24.65: A gain of 17.24%

March 23, 2007 Chasing Value: Cemex and LaFarge look solid: CEMEX S.A. B de C.V. (ADR) (NYSE: CX) closed at $29.17 down from $34.92: A loss of -16.47%. LaFarge (ADS) (NYSE: LR) closed at $37.80 from $39.02: A loss of -3%.

Cemex sank with the continuous reports of the deteriorating housing market in the United States. In the meantime it continues to move forward with the integration of Rinker, the largest supplier of construction materials in Australia. This makes Cemex the largest in the world and sets the stage for continued growth in Southeast Asia. It also is continuing to focus on reducing debt.

Of all the stocks I have written about in the Chasing Value section, I feel that this one suffered the most from guilt by association. I believe it was fairly valued before and it is on sale now. This company, with it's PEG ratio at .83 and lowered, P/E, P/S, P/B (SEE: AOL Money & Finance) has a ROE over 22 and pays about a 2% dividend yield.

April 6, 2007: Chasing Value: Johnson & Johnson (NYSE: JNJ) closed at $63.20 up from $61.25: A gain of 3.18%

April 11, 2007: Chasing Value: Duke Energy (NYSE: DUK) closed at $18.66 down from $19.00: A loss of -.018%, even money.

April 11, 2007: Chasing Value: Washington Mutual - WaMu (NYSE: WM) closed at $35.53 down from $39.00: A loss of -8.9%

April 17, 2007: Chasing Value: Bear Stearns - cheap and growing (NYSE: BSC) closed at $117.19 down from $148.00: A loss of -20.82%

April 18, 2007: Chasing Value: InfoUSA: Low share price for the kids (NASDAQ: IUSA) closed at $9.56 down from $10.53: A loss of -8.93%

May 1, 2007: Chasing Value: IndyMac Bancorp - once in a lifetime (NYSE: IMB) closed at $22.95 down from $30.09: A loss of -23.73%

May 29, 2007: Chasing Value: USG -- A bargain, plain and simple! (NYSE: USG) closed at $36.37 down from $52.00: A loss of -29.42%

June 7, 2007: Chasing Value: Quest Diagnostics Inc. (NYSE: DGX) closed at $55.53 up from $50.83: A gain of 9.25%

June 11, 2007: Chasing Value: Berkshire Hathaway -- the time is now (NYSE: BRK.B) closed at $3,995.95 up from $3,612: A gain of 10.36%

June 12, 2007: Chasing Value: Tata Motors LTD - patience, patience, GOT IT! (NYSE: TTM) closed at $17.02 up from $16.00: A gain of 6%

June 19, 2007: Chasing Value: Bank Popular (BPOP) should be very popular (NYSE: BPOP) closed at $12.03 down from $17.00: A loss of -29.24%

Well, if you bought into my first quarter picks, you would be putting me on a pedestal and if you bought into my second quarter picks, you would be knocking it down. However, If you were to have acquired equal dollar amounts of all seventeen stocks, you would be up 5.55% plus dividends. The S&P 500 was up about 3.5% through September 4, 2007 plus dividends. In my last update the "scoreboard" was quite amazing and I wrote that someday I might have to eat humble pie. Through June that is the case because I expected to have done much better.

The question now is whether the financials have absorbed too much fear and pessimism overshooting the mark to the low side, or if the fear is justified and there is a lot of bad news that has not yet surfaced.

My own feeling is that all the bad news, and then some is priced into these stocks. Interest rates will stay flat or go down over the next few months easing some of the pressure on many of my picks and the overall market. Many of these companies will improve as many of their competitors disappear. For the most part it's clear I was too optimistic about the strength of these institutions and got in way too early.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He is on the advisory board of Internet start-up CircleBuilder.com.

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MOST NOTEWORTHY:

• JP Morgan downgraded shares of McGraw-Hill (NYSE: MHP) to Neutral from Overweight based on expectations for a decline in credit market issuance activity.

• Stein Mart (NASDAQ: SMRT) was cut to Sell from Neutral at Merrill, citing macroeconomic concerns and the impact on margins and comps.

• Matrix cut USG (NYSE: USG) to Sell from Buy and removed them from the Focus List, Matrix cited the 55% cut in excess cash per share over the past year, which makes shares expensive on a performance-adjusted basis.

• Stifel views Seacoast Banking (NASDAQ: SBCF) as overvalued, downgrading shares to Sell from Hold, given earnings growth headwinds from credit quality and net interest margin compression...

• Tenneco Automotive (NYSE: TEN) was downgraded to Neutral from Buy at Goldman.

• Brookdale Senior Living (NYSE: BKD) was downgraded to Hold from Buy at Stifel.

• Keefe Bruyette cut Countrywide Financial (NYSE: CFC) to Underperform from Market Perform.

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MOST NOTEWORTHY:

• WestLB upgraded shares of DaimlerChrysler (NYSE: DCX) to Buy from Add after the company raised the profit margin forecast for its Mercedes unit.

• Omniture (NASDAQ: OMTR) was upgraded by Piper Jaffray to Market Perform from Underperform to reflect the company's strong revenue momentum and expanding margins.

• Wedbush upgraded Convergys (NYSE: CVG) to Hold from Sell on valuation.

• Citigroup raised shares of Expedia (NASDAQ: EXPE) and Baidu.com (NASDAQ: BIDU) to Buy from Hold on valuation...

• Bear Stearns upgraded shares of Ryder System (NYSE: R) to Outperform from Underperform.

• Lehman raised EnCana Corp (NYSE: ECA) to Equal Weight from Underweight.

• USG Corp (NYSE: USG) was raised to Neutral from Underperform at Buckingham.

• Morgan Keegan upgraded shares of Panera Bread (NASDAQ: PNRA) to Outperform from Market Perform.

• Citigroup raised Cullen/Frost Bankers (NYSE: CFR) to Hold from Sell.

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MAJOR PAPERS:

• The Wall Street Journal (subscription required) highlighted the struggles of casual dining chain Applebee's International (NADSAQ: APPB), where even the company's founder said "[Applebee's] doesn't have anything that would make me want to come back".

• According to the U.K. Times, Vodafone Group (NYSE: VOD) is the favorite to win the European rights for Apple Inc's (NASDAQ: AAPL) iPhone, despite stiff competition from rivals Orange and T-Mobile.
• From BusinessWeek's "Inside Wall Street" column:
• There's talk that Warren Buffett may increase his 17% stake in USG Corporation (NYSE: USG) before the housing cycle turns.
• Demand is surging for Kaydon Corporation's (NYSE: KDN) anti-friction bearings, which are used in robotics, aerospace, and other industries, including wind power equipment.
• Analysts say United Retail Group Inc (NADSAQ: URGI) has perfected fashion for the large womens' market, size 14 and over.

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DOW JONES & COMPANY (NYSE: DJ)

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I have not written a Chasing Value post for quite a while because I could not find anything to brag about for a couple of weeks, but then I found something hiding in plain sight.

Few things are more plain and simple than drywall. The same can be said for the purity of this stock from a value perspective. I have been watching USG Corp (NYSE: USG) for a while and today I bought it for $52. I should have bought it last week but other priorities prevented it.

Looking at the stock fundamentals I did a double take because it all seems too good to be true. Starting with the following chart, I remind readers that I am not a technical analyst and don't believe in it, however I do look at charts for two features that are best represented graphically and allow you to see the story quickly.

As a value investor I like to buy stocks that fall below their mean, that way I can make money on the reversion to the mean without any fantastic earnings reports or promising story. The other thing I look for is a stock chart that reflects an overly pessimistic view by the majority of investors for what is a short term and not intrinsic problem with the stock. For example in the case of USG, there is nothing wrong with being in the drywall business (it's not wagon wheels) it's just a temporary difficulty caused by the downturn in housing. You can see this stock has been badly shaken down from a high of about $115 to its current $52.

I think this stock is way too cheap. In the case of housing companies, yes their business may have been cut in half, but that's housing companies. This company still has commercial sales and other aspects of its business still moving product. If the housing stocks have been cut in half then USG should have been something less than half but as you can see it overshot the mark to the downside. It also had problems with potential asbestos claims which drove it into bankruptcy, from which it emerged last year.

Now for some value-like metrics: The P/E is 7, the P/S is .56, the P/B is 2.79 and if that does not blow you away you can pick up USG at a price-to cash-flow (P/CF) of 1.82. Can this be right? This seems like a misprint, but that's what it said at AOL Money and Finance.

It gets even better, the largest shareholder is Berkshire Hathaway Inc. (NYSE: BRK.A), so if I'm going down, so is my "pal" Warren. And what does Warren Buffett love to present to his shareholders? RETURN ON EQUITY! Buffett often speaks about creating shareholder value. So what is the ROE for USG: 73.86 (TTM) or ten times the P/E. Since both are trailing numbers it is a fair comparison. I do not recall seeing this before so bless his heart, he is on to something -- again! Anybody thinking Buffett might buy the rest of the company?

Given the interesting metrics posted on AOL I decided to look elsewhere to verify some of the data. However, I only received confusing information. According to one of my brokers at Vanguard, (I trade online but use Vanguard for information) Bloomberg indicates a N/A for ROE and checking the most recent Standard and Poor's report on USG dated May 26, 2007 the ROE is listed as 46.75, still incredible but lower than AOL stated. The other figures appear to be in line with AOL.

Since I mentioned S&P, I should also mention that it is not a fan of this stock, giving it a quality ranking of C on a scale of D to A+ and the lowest fair value ranking of 1 on a scale of 1 - 5. I guess it does not like the stock and I usually hold S&P reports in high regard -- it has a great track record. On this one, however, I think I will have to buck the crowd.

I am also bucking my own basic investing fundamentals in one regard and that is dividends. Ninety percent of the time I will not buy a stock that does not pay a dividend, but USG only last year came out of bankruptcy so I will give it time and go against the grain here too.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.

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