Billionaire investor Howard Marks has said that “success in investing is not a function of what you buy — it’s a function of what you pay.” 

#-ad_banner-#Basically, that means investors should look for opportunities to snatch up market-leading companies when they are trading cheaply. 

The housing bubble and subsequent market pullback are a good example, creating a number of intriguing buying opportunities. Naturally, the construction industry was one of the hardest hit. The Dow Jones U.S. Heavy Construction Index fell 65% in just a few months in 2008. 

All parts of the industry were impacted, especially construction equipment financing companies like CIT Group (NYSE: CIT), which filed for Chapter 11 bankruptcy in 2009. Since then, the company has been rebuilding its image and revamping its balance sheet. 

But the equipment financing business is still in recovery mode, and shares of CIT are down nearly 20% this year, especially after reporting lower than expected earnings last quarter. Its price/earnings-to-growth (PEG) ratio is now below 1 — meaning that at its current price, CIT offers a compelling buy opportunity. 

The market focused primarily on the fact that earnings per share (EPS) came in at $0.55, compared with $0.81 a year ago. CIT Group blamed the falloff on declines in interest income due to higher lease operating expenses and an increase in the provision for credit losses.

In addition to the continued recovery of its core business, another source of long-term upside for CIT Group is through reducing its high-cost debt. One of the ways CIT Group has been going about this is with CIT Bank. 

Before CIT Bank’s inception, CIT Group was mainly a leasing and financing company, and its access to funds was more expensive than, say, what a typical bank had to pay. CIT Bank was formed in 2000 but didn’t gain much traction until John Thain became CEO a decade later. 

A former CEO of Merrill Lynch and the New York Stock Exchange, Thain has said CIT Bank’s growth remains a priority for the company. Total assets at CIT Bank just passed the $16 billion mark, and deposits now exceed $13 billion. 

In February, CIT Group boosted its European operations with the acquisition of Paris-based Nacco. I see this as a good move because Europe is on the verge of recovery, and that means companies will need more financing. Nacco should be a prime beneficiary of this recovery: One of Europe’s largest independent full-service railcar lessors, Nacco owns over 9,500 railcars and has over 150 customers in 16 countries.

Another focus for CIT Group has been on repurchasing shares and paying down its debt load. The company has refinanced or paid off over $30 billion in debt since 2010. In addition, CIT repurchased 2.9 million shares in the first quarter and 1.6 million shares in April for a total cost of $211 million. CIT has about $396 million remaining on its current buyback authorization.

Risks to Consider: CIT Group was one of the hardest-hit financial firms during the crisis. While the firm is stronger now than it was prior to the start of the financial crisis, a severe economic downturn would have a significant impact on CIT Group.

Action to Take –> CIT Group trades at less than book value, while the entire industry is close to 1.3. At my price target of $50 a share, CIT Group will be trading at around 1.1 times book value, and that’s still below Wall Street’s consensus price target of $53 — which represents 20% upside from current levels. 

P.S. No strategy can protect investors from all market turmoil, but this one comes close. After months of research, my colleague Nathan Slaughter has proven that investing in dividend-paying companies that pay down debt and pay “tax-free dividends” helped shelter investors from even the worst downturns. Not only has the strategy returned an average of 15% per year since 1982, but it’s outperformed the S&P during the dot-com bubble and the financial crisis, too. To learn more about his “Total Yield” investing strategy, click here.