For Investors, Finding Value in an Uncertain Market
As the bulls and bears fight it out on Wall Street, analysts say investors would be wise to look for value beyond the fray.
While most money managers expect the near-term volatility to continue, they still see further opportunities in stocks.
"I don't see where anything has really changed," James Paulsen, Chief Investment Strategist at Wells Capital Management, told CNBC.com. "If anything, the market got a little cheaper and I think we'll go higher and hit new highs again this year."
"We're bottom fishing right now," said Brian Hicks, president of Wealth Daily, a newsletter for investors. "We think the correction is about to end, setting us up for a summer rally."
"When everything drops, it takes the good and the bad down with it," said Donald Hodges, President of Hodges Capital Management. "We find value in categories across the board."
"A Few Bright Spots"
Analysts say investors can find good buys if they look for solid fundamentals that support the sector or company's growth.
"We do see a few bright spots, although it's tougher to find good prices than it was a year ago," Christopher Zook, Chief Investment Officer at CAZ Investments, told CNBC.com.
Zook likes quality large-cap stocks and he is positive on the energy sector. "We have added to our energy exposure in the last couple of weeks," he said. "Valuations have contracted dramatically, while, in many cases, cash flow has doubled."
Zook also sees select opportunities in consumer discretionary stocks. He likes Archer-Daniels-Midland , which he says has pulled back 30% from its peak.
CAZ Investments owns ADM.
While some money managers like Zook are finding value in large-cap companies, Wealth Daily's Brian Hicks is touting small-caps. "We're putting money to work in the Russell 2000," said Hicks.
He likes small-cap technology companies such as VeriFone , which designs transaction automation systems that enable electronic payments, and DivX , a video compression/decompression software maker.
"I like the fact that VeriFone acquired a company in China, which is probably the biggest growth market for credit card and electronic transactions," Hicks said. "DivX is growing like a weed with sales increasing 50% per year. Without a doubt, I think it's the best tech play of 2007."
Wealth Daily owns VeriFone and DivX in its stock portfolio.
A Broad Recovery
"We're betting on a broad market recovery, so we would play exchange-traded funds," Frederic Dickson, Chief Market Strategist at D.A. Davidson, told CNBC. "We would basically spread money between the foreign market EFAs, which are the global trading funds, mid-cap growth and the Nasdaq QQQQ."
My favorite sector is the industrials," said Paulsen of Wells Capital. "The manufacturing industry has been harshly treated and it's mainly autos that are the problem. They've been left for dead, but they'll come back to life."
Paulsen also believes tech stocks will benefit from an excess of capital spending that has yet to be utilized. However, he is avoiding energy shares. "I think we're going below $50 a barrel at some point this year."
Donald Hodges recommends select mutual funds such as Legg Mason , Blackrock and Franklin Resources.
He also likes offshore drillers and railroad stocks, including Burlington Northern and Union Pacific.
"The railroad industry has had a rebirth," said Hodges. "Their biggest business is coal and the coal business is growing. There are not going to be any more railroads developed and the ones that exist are more efficient now."
Hodges Capital Management owns all of Hodges' recommendations in their portfolio.