Finding cheap stocks in a downdraft isn't hard. Finding valuable stocks can be. David Pearl has a simple formula for stepping back from the fray and pinpointing the potential winners.
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"The framework one should look at is companies that are very profitable," the head of U.S. equities for Epoch Investment Partners told CNBC. "If they generate cash, they're going to do very well, even in a downturn. That cash means they can never go out of business -- and when their stock is down, they buy it back, or buy a competitor very cheaply."
"Davita is an example," he said. "When you provide services to the chronically ill, if you lose kidney function, you need to be dialyzed three times a week for the rest of your life, so they have very stable revenue -- which translates to great free cash flow, and that cash pays down any debt and buys back shares."
Disclosure information for David Pearl was not immediately available.