Riding The Rally

U.S. stocks have been on a tear in the past two months, which is saying something given that the big selloff in late February made many wonder if the party was over. Whether it qualifies as a "mini-correction" or something else, the 4% decline seems a distant memory.

The Dow Industrials, in particular, have been on a seemingly relentless ascent, hitting record highs on a regular basis, breaking through 13,000 and making a move towards 14,000. The S&P 500, has been playing catch up, but it has managed to regain the 1500 level after a near-seven year absence and is within striking distance of its all-time high.

Stocks have benefited from surprisingly strong first-quarter earnings as well as relatively positive economic data, the housing sector excepted, of course. The Fed --which meets Wednesday--has shown no inclination to cut interest rates anytime soon, but that isn't rubbing investors the wrong way. The weak dollar, despite all of its implications for the twin deficits, appears to be helping. And an inverted yield curve, which often indicates a recession down the road, has yet to shake confidence.

No surprise then that Goldman Sachs' Chief U.S. Equity Strategist Abby Joseph Cohen has raised her year-end forecasts for the Dow 30 and S&P 500; she now sees the blue-chip index hitting 14,000 and the broader market barometer touching 1600. Short term, analysts are sounding a more cautious note.Cohen says investors should rotate from housing to capital goods and exporters.

With a market move of this kind, it's appropriate to drill down for answers as well as take a look at some key sectors from financials to telecoms to utilities.

Financials

Jeff Harte, analyst at Sandler O’Neill, told CNBC’s “Squawk Box” that many internationally focused financial stocks are undervalued.

“My thesis has been that it’s been a tough environment if you’re a domestic-centered bank,” Harte said Tuesday. “The yield curve is flat and credit is probably not going to get a lot better. But from a cyclical standpoint, there’s still a lot of upside revenue-wise from global investment banks.”

He likes Goldman Sachs , Morgan Stanley and Merrill Lynch .

“I’d probably highlight Morgan Stanley as the one that has some of the best positioning, but is trading at a discount to it’s closest peer, Goldman Sachs,” Harte said.

He said the stocks aren’t bargains, but aren’t expensive, either.

“The way you typically value a broker is a price-to-book multiple,” Harte said. “That’s because the earnings can be volatile. On a price-to-book basis, the stocks are trading a little over two-times book. They should be trading higher than that. So, they’re certainly not bargain-basement valuations, but given how good their earnings have been, I’d argue the price-to-book multiple should be quite a bit higher.”

Harte said the stocks offer investors the opportunity to get back to basics.

“One of the things I like about the investment banks is you’re making a play on the history of cyclical economics – not trying to forecast what the Fed is going to do next,” Harte said. “My bet is the Fed is going to stay pat for quite a while and maybe, if anything, start raising – not cutting. If the Fed starts cutting rates, it’s for all the wrong reasons, implying that the economy is going the wrong way.”

Telecom, Utilities...

Telecom

Craig Moffett, senior cable and satellite analyst at Sanford C. Bernstein, told CNBC’s “Squawk on the Street” that cable appears poised to beat satellite TV in the marketplace.

“I wouldn’t say (satellite) is dying, but remember that it’s a one-way technology in what’s increasingly a two-way world,” Moffett said Tuesday.

“At the heart of it, the reason cable is winning – and it’s winning phone subscribers and it’s starting to win back broadband subscribers – is not because they have more products in the bundle, but because they have a marginal cost advantage," he added. "They can do it all on one network with one cost structure, one set of capital equipment – and nobody else can. They’re giving enough of that cost advantage to consumers that they’re starting to take back share across every single one of these product lines.”

Moffett said investors should consider selling EchoStar and DirecTV and buying Comcast and Time Warner.

“For growth investors, I think it’s Comcast and Time Warner,” he said. “It would be nice to be able to say one is preferred over the other, but frankly I think they’re going to trade with a very high correlation and they’re very similar stories. So, I don’t think there’s a strong preference between the two.”

He said cable growth rates are stronger than they’ve been in decades as companies re-invest to meet strong demand.

Telecom will be a factor in the battle, but faces a tough fight.

“Verizon’s footprint at the end of its capital program will only cover about 13% of the United States,” Moffett said. “Even if they get 20% market share, they’ll have 2.5% of the U.S. video market at the end of this project. That’s not to say that 20% isn’t successful, but it puts into context just how big a project it is.”

Utilities

Paul Fremont, managing director at Jefferies & Company, told CNBC’s “Morning Call” that he has a strong outlook for electric utility stocks.

“We believe that, for the time being, you’re looking at prospects for much higher power prices,” Fremont said Tuesday. “So, at least for the next year or two with generation prices poised to increase $50 to $80 per megawatt hour -– which would nearly double the cost of power to end users –- we think the prospects for electric utility stocks have never been brighter.”