Now, I hate to put myself in a situation to sound like Herbert Hoover, who said the worst has passed before the Great Depression had even warmed up, but I do think we've seen the darkest hour. All that's left is the dawn.

   That being said, it could well be six or eight months away, and that will be gone in the blink of an eye. Smart investors need to position themselves now. Stock prices are at multi-decade lows. Indices are trading at earnings multiples a fraction of their historical norms. Patient investors with moderate risk tolerances and an 18-month to two-year time horizon can latch onto these bargains. Those who do will put themselves in line for gains unseen since 1975.
   You remember 1975, right? President Ford declared the end of the Vietnam era. "The Godfather, Part II" won best picture. And famed UCLA coach John Wooden coached his Bruins to their 10th NCAA championship in 12 years.

   You'll also recall that 1975 came after 1974, which was one of the worst years in stock-market history. The Dow Jones Industrial Average was gutted, losing -27.6% of its value.

   But in 1975, the blue chips gained +38.3%. The sixth worst year of all time was followed by the eighth best year on record. Those two extremes have been juxtaposed time and time again in the markets. The clearest buy signal is a bear market.

   Those who know this history may well be lucky enough to repeat it. But investors need to start buying now. This is a rare opportunity to time the market and to buy in at the low. The dollars you invest now, at a substantial discount, will reap the largest gains when the economy and the market rebound.

   Some companies will come around faster than others. It might take time for some of the nation's hardest hit banks and financial service companies to make up lost ground, and the auto industry faces a long, hard slog.

   But some companies will see a rebound relatively quickly. Most of what has pressured these companies' shares is far more attitudinal than fundamental. When investors feel better about the economy, they will bid these shares up the fastest.

   In the upcoming weeks. I'll examine three companies or industries that I think will turn around the fastest.

See the Whole (Foods) Picture

   Whole Foods Market (Nasdaq: WFMI), the upscale gourmet grocer, has had a rough go of late. Its shares have lost -77% of their value and are at a multiyear low. Revenue is on the upswing but profits -- typically inconsistent -- are flagging. It's trying to manage an acquisition that the government isn't making any easier.

   As if all that weren't enough, John Mackay, co-founder and chief executive says the current retail environment is the worst he's seen in three decades in retail. Even the relatively affluent customers who shop at Whole Foods are tightening their belts. They may prefer free-range chicken and organic fruit, but McNuggets and Fig Newtons get the job done in a pinch.

   The result: Whole Foods, a company that has a decade-long history of top-line growth of 20% a year, is trading at a mere 11 times earnings. That's a valuation more appropriate for a no-growth utility, not a dynamic, market-leading retailer. In fact, that's less than half Whole Foods' typical valuation -- even though there is nothing fundamental to suggest the business has long-term problems. Lexus isn't worried that consumers are going to stop buying its premium automobiles. The Four Seasons isn't scared people will stop staying in its five-star hotels. Nor should Whole Foods -- or its investors -- be worried that consumers are going to stay away from high-quality organic food after the downturn ends in the second half of 2009.

   But forget earnings for a moment. Whole Foods is undervalued purely on an asset basis. Shares are trading at 0.86 times book value. That's a significant discount. The S&P 500 Index trades at 1.6 times its book value, and the Dow Jones Industrial Average is selling for 2.6 times net assets. Both indices have been decimated, but even this depressed basis for valuation implies a fair-market price of $17.18 a share for Whole Foods, which is almost twice what it's selling for right now.

   Even so, that $17.18 price still far understates the potential. That's because 1.6 is an average, and Whole Foods is absolutely not an "average" company. Whole Foods, in fact, dominates its niche. Category leaders -- companies with exceptionally strong market positions -- are always worth a premium. Coca-Cola trades at 4.2 times book, McDonald's at 4.8. Altria, which owns some of the most powerful brands in the world, trades for 8.3 times book. That's why Warren What's-his-name from Omaha is so fond of strong brands -- he understands the value of a market leader's ability to generate future earnings is a multiple to its net assets' worth.

   Whole Foods, thus, is a classic value play. Three times book means Whole Foods is worth $32.22. My target for these shares is $30. That's not unreasonable on an EPS basis, either. $30 is only 20 times $1.50 a share in earnings, and most estimates call for closer to $3 a share in earnings in the near future.  

   Now, this is obviously a contrarian play, but I'm going into this with eyes wide open. I'm fully aware that the company just issued disappointing earnings, cut its dividend and suspended guidance. I also know retail is a tough business in the best of times; during a downturn it's can be particularly difficult to survive, -- and it's not like grocers' narrow margins allow much room for error in any climate.

   But don't count out Whole Foods. There are still three tricks left in this hand, and I think Whole Foods, battered though it is, holds the high trump cards. Here are the queen, king and ace:

A $425 Million Equity Injection Fuels Expansion

   Whole Foods received a major vote of confidence with the announcement of a $425 million equity investment by Leonard Green & Partners. The cash bought Leonard Green a preferred stake -- 17% of the company -- that's convertible into common stock at $14.50 and meantime earns a dividend of 8%, or $34 million. The infusion dilutes the value of existing common stock holders, but it gives Whole Foods sufficient cash to continue its expansion plans even as the economy falters.

   This is critical. As I mentioned, grocers have thin margins. The best way to juice the bottom line is to drive the top line. In other words, the more revenue Whole Foods can bring in, the more profit it can earn. By continuing its expansion, it will emerge from the downturn with a more robust retail footprint.

Snapshot of the Compound Annual Growth Rate (CAGR) for WFMI
	1991	2007	CAGR
# of Stores	10	276	23%
Annual Sales	$92.5M	$6.6B	30%
EPS	$1.29	$0.08	18%

   Whole Foods will have 66 new stores in the next four years. Each store generates nearly$37 million in sales, or a total of $2.4 billion. With an average profit margin of 2.7% over the past ten years, that should add at least $65 million to the bottom line. That's roughly half the profit expected this year from Whole Foods' existing 276 stores.

   Not only will that growth impact the bottom line, but so will the transition of 55 stores from Wild Oats to Whole Foods. Wild Oats Markets, which Whole Foods acquired, managed to sell $457 worth of merchandise per square foot each year. Whole Foods stores, however, sells roughly twice that. This will continue to have positive ramifications for years to come as Wild Oats stores transform into Whole Foods stores, fully embracing not only their culture but their higher sales performance.

Leading Market Position

   Whole Foods is the world's leading natural and organic foods supermarket, with some 6.6 billion in sales last year. What started as a hippie outpost in Austin has become a serious corporate heavyweight, one that ranks 369th on the Fortune 500. Whole Foods -- the fifth most valuable food retailer in the country -- is bigger than Harley-Davidson and Owens-Corning.

   Two things have driven this metamorphosis: The first is Whole Foods' unwavering commitment to selling only the finest organic foodstuffs. The second is a shift in customer tastes and spending patterns squarely in Whole Foods' direction. These two elements, combined with smart acquisitions, have drawn Whole Foods from its roots as a countercultural phenomenon to its present position as the platinum standard of food retailing.

   "Green" foods are gaining in popularity. This is being driven by ever-increasing education and awareness of the role of nutrition in health, and the aging (and affluence) of the population. Organic food, hardly a mainstream concept even 10 years ago, is now a pervasive food industry trend, with government-sanctioned labeling standards. Whole Foods became the nation's first certified organic grocer in 2003.

   In 2007, retail sales of organic foods were $20 billion, up +400% from 1997. Plus, the base of purchases has expanded. Ten years ago, women in the 30s bought the organic food. Three years ago, older Americans had become its largest consumer, according to data from The NPD Group. Now, young adults and kids have been added into the mix. Denver-based National Restaurant Consultants says 35% of its clients want to talk about organic menu items. Three years ago, that number was functionally zero.

   That being said, the American consumer is notoriously fickle. Consumer confidence swings dramatically, but it bears no statistical correlation to aggregate retail sales. Even so, consumers are cutting costs where they can. That's temporary. Confidence will swing back. The trend toward organic food isn't abating. And Whole Foods is still the worldwide market leader.

Slumps Sharpen Focus

Whole Foods appears to have drifted between strategies. Sometimes it looks to be focused on paying a rich dividend to reward shareholders, other times it seems to be totally geared toward growth. But slumps sharpen focus. CEO John Mackay probably has learned that handing all the cash to shareholders limits one's ability to fund growth, and he'll likely revisit that lesson every time the CFO cuts a check to Leonard Green for the preferred dividend.

   The most important thing in the food business is volume, which Whole Foods is devoted to increasing through expansion. The next key is profitability, and this is one area where Whole Foods has delivered on, at least in relation to other grocers. The chart shows its relative profitability versus industry-leading competitors like Safeway and Kroger.

   Whole Foods' CEO John Mackay looked a little silly recently when he was discovered posting on investment message boards. But outside of that bit of tomfoolery, Mackay has shown he can make serious decisions. The company cut its dividend, admitted it was confused by the retail environment and suspended earnings guidance. It brought in ample fresh capital and is putting its efforts into growth. Sales are still on the rise. Earnings will follow. Patient investors will see what Whole Foods' customers see: Lots of green.

Many happy returns!

Disclosure: Andy Obermueller does not own shares of Whole Foods.

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