One thing is clear about the upcoming election: The race will be won based on how the economy shapes up over the next few months and how the tax policy plays out.

For investors, the outcome of the tax policy is especially important… If the Bush-era tax cuts are rolled back in their entirety, some economists project that the market will crater between 7% and 15%.

[ad#Google Adsense 336×280-IA]Granted, you shouldn’t always bank on economists’ predictions, seeing as how they often resemble chimpanzees throwing darts.

That being said, if an uptick in corporate taxes or higher taxes on dividends and capital gains do take hold, we’re bound to experience some serious downward pressure in the coming months.

So how do you emerge richer from the situation? Become a “future” value investor…

Here’s what I mean…

The Second-Best Buying Opportunity of the Decade

We all know that most investors make bets based on herd mentality.

If the market’s down (and stocks are ripe for the picking) investors won’t buy. And when the market’s on a rapid upward trajectory (with stocks getting more expensive by the day), they go all in.

This explains why most investors fail to meet their investment goals over time.

We saw it happen in 2008 and 2009: Most investors were so shell-shocked and paralyzed with fear that they couldn’t take advantage of buying companies like Intel (Nasdaq: INTC) for $13… Microsoft (Nasdaq: MSFT) for $16… Exxon (NYSE: XOM) for $62… Apple (Nasdaq: AAPL) for $82… or Las Vegas Sands (NYSE: LVS) for less than $2!

But for investors who took strategic action, it ended up being the best buying opportunity in the last 10 years.

However, for those of you who couldn’t (or wouldn’t) take part before, we’re about to enter the second-best buying opportunity of the decade.

Only this time, there’s a way for you to start picking value stocks before they get cheap. That way, you’ll be ready to act before they rebound…

Cash-in on Lowered Guidance

You see, for several quarters the pressure’s been building for companies to outperform the previous quarter’s numbers. That way, investors can feel confident that the market is, indeed, on the rebound.

Now the trend is changing.

One American company after another is reporting that future earnings will be impacted by uncertainty in the market, thanks in part to the pending tax decision, along with the situation in Europe.

It’s not really surprising. Corporate America loves a good crisis, since it allows companies to dodge the blame for any future earnings miss. It’s like an earnings vacation without all that pressure to outperform.

How can you profit from the situation, though?

Well, over the next couple of quarters, we can expect companies to continue lowering guidance. Accordingly, that should force shares to trend lower in the coming months. But once the impact of increased taxes and the crisis in Europe cools off, earnings will begin to beat those decreased projections.

When that happens, share prices are virtually guaranteed to catapult higher.

And investors who position themselves to cash-in on these companies ahead of time will be rewarded.

It’s what I like to call “future” value investing (i.e. – choosing value stocks before they’re undervalued).

It’s not just about looking for companies reporting lower guidance, though. Before adding a company to your list of “future” value stocks, make sure that the company also…

  • Has a decreasing price-to-book ratio.
  • Pays a dividend that’s sustainable.
  • Hasn’t seen a decrease in marketshare.
  • Demonstrates continued investment in research and development.
  • And is prepared to cut administrative costs.

Bottom line: As higher taxes and the situation in Europe continue to make investors leery – and force companies to lower guidance – don’t run for cover. Instead, start putting together a shopping list for what could be a very profitable payday down the road.

Ahead of the tape,

Karim Rahemtulla

[ad#jack p.s.]

Source: Wall Street Daily