1) they could become companies mired in secular decline, unable to adapt to the current business environment, or
2) they could find a way to adapt and emerge as stronger companies.
As an example of the latter, consider Audiovox (VOXX), which sells consumer electronics and accessories. Prior to the recession, Audiovox had some trouble turning a profit. This served as an early wake-up call, forcing the company to focus on cutting costs and exiting lower margin products. While this had the effect of reducing revenue, the intention was to become a healthier, more sustainable business.
When the recession hit, Audiovox was already in the process of cutting its fat, whereas other companies were only just beginning. As a result, while many of its competitors are currently still losing money, Audiovox has now turned a profit for two quarters in a row.
Amazingly, while the stock has almost quadrupled since its March lows, it still trades at a discount to its net current assets. By finance industry standards, the company is "risky" due its high beta above 2. But from a value investor's perspective, the company's business risks do not appear onerous. The company offers a diverse range of products, and sells these products to a relatively diverse group of customers.
In addition to the discount to net current assets at which the company trades, the investor is offered the company's equity investments, investment securities, land, and intangible assets for free! But don't take my word for it; interested in another perspective on VOXX, or another stock you have your eye on? One of our sponsors, INO.com, offers our readers a free analysis of a stock of their choosing here.
Disclosure: Author has a long position in shares of VOXX