Several years ago, I had three memorable run-ins in the same elevator. It was the elevator going up to the 10th floor in a building where I was a partner in a $120 million venture capital fund, 212 Ventures, from 2000 to 2001. We opened up doors on March 16, 2000, coincidentally the day that the Nasdaq reached its highest point ever.

The first event occurred in the elevator with David Bowie. I wasn't paying attention to who else was in the elevator until I heard his voice. It sounded like what velvet would sound like if it spoke. He was talking to Iman, his wife. I have no idea why they were in the building since it was a pretty scruffy New York building, on Broadway near Houston, but I think there might've been a recording studio in there somewhere.

Another time I shared the elevator with a guy who going to a Web design firm that was located in the building. I mentioned I used to run a Web design firm, and he asked which one. When I told him, he got excited and shook my hand and reeled off all the Web sites we had done (except for ConEd.com, not my favorite), such as Miramax.com, the Matrix site and our HBO sites. I used to think the Internet would be this infinite digital archaeological dig, with sites that lasted forever. But now I look back and can't even find any of the Web sites we've done. Maybe some are on Archive.org, but very few. Even the Internet's brain is not so big that it can't forget.

The third incident occurred when I was riding in the elevator with one of my partners at the venture capital firm. We realized that on the fifth floor was a firm whose stock had gone from $100 to 50 cents. We laughed about it, and one of us said (I forget who), "That's got to
suck." This was in the 2001 part of the bust, when all Web services firms basically disappeared or went bankrupt. Then the elevator opened on that floor, and a guy standing behind us whom we hadn't noticed stepped got off the elevator. Before the elevator door closed, he turned to us and said, "Shut up! It's not funny!" Whoops!

I have a framed handwritten letter written by John L. Sullivan, former heavyweight champion of the world from the 1880s. He says to his friend in the letter, "While ascending the Hill of Prosperity may you never meet an old friend coming down." This is a great quote, and you only learn it from experience. So many stocks have fallen hard in the past few months -- and with them, the wealth and stockholder happiness that they'd created -- that you have to sit back and wonder: Do things cycle? Will these stocks -- and all of us -- have the energy and wherewithal to come back again?

Here are three stocks that have been beaten so badly, whose shareholders have been so harshly burned, that one will need dental records to identify the remains.

I'm thinking of VMware (VMW), Polycom (PLCM) and Sears (SHLD).

VMware was the hot IPO of 2007. The virtual storage company, spun out of EMC (EMC), reached a high of $125 and last week hit a new 52-week low at $34.17. The CEO got fired, Microsoft (MSFT) became a competitor, and the company missed on revenues and guided down. But let's take a step back from the well that the Wall Street analysts get drunk at at the end of each day. Earnings are still going to grow 42%, and the company has a cheap 28 P/E (relative to growth). International revenues grew 68%. The new CEO was an executive at Microsoft (he helped develop Windows) and Intel (INTC). The entire industry is moving toward cloud computing and virtual storage. This is an IT demographic trend the same way the Internet was in the '90s, and it's not going away.

Polycom is at $24, down from $36 last year. It makes video conferencing software so that you don't even realize you're in a different room from the people screen. In other words, who cares if oil is at $900? You don't need to travel to meetings anymore. Polycom has $300 million in cash with no debt. Revenues were up 16%, and net income was up 17%. But, alas, income missed estimates by one penny. Do they even make pennies anymore? The company has a forward P/E of 12, and eventually it will be back at its 52-week high.

Sears is going to have its day in the sun, too. The stock has been beaten to a pulp in the current environment, but at these levels it's too cheap to ignore. The market is valuing its real estate at $50 per square foot, vs. $300 per square foot for Kohl's (KSS) and $144 per square foot for J.C. Penney (JCP). That's a significant margin of safety for a company trading at 5 times EBITDA.

By James Altucher

Posted on Sept. 24, 2008