Where the Bargains Are In September Stocks
September may traditionally be the worst month for stocks, but some market pros think now is the time to snap up some bargains.
"Investors are still cautious, but we are seeing some good buying across the board," Kevin Kerr, senior analyst at Resource Trader Alert, told CNBC.com.
For one thing, stocks are relatively cheap after the summer selloff. And many analysts think the market is poised to head higher once the Federal Reserve decides to cut interest rates.
"We are going to see rate cuts," says David Dietze, chief investment strategist at Point View Financial Services. "We we have the lowest valuation in the S&P 500 in a decade at about 14 times forward earnings. Cuts would translate into growth, growth ultimately translates into profit growth, and profits translate into higher stock prices."
Dietze sees potential in recently battered financial stocks, and what he describes as a "washout" in consumer discretionary stocks should the Fed begin a rate cutting campaign.
"Don't Fight Fed"
"The old mantra is don’t fight the Fed," says Dietze. "Chairman Bernanke has pledged to do what is necessary with all the tools at his disposal. That should reduce risk and as a byproduct stock prices would benefit."
Dietze says he is looking for "quality, stability, and a dividend yield" and favors Bank of America in the financial stock group, noting that company has a 5% dividend yield that is akin to a "call option on the stock" which gives some protection to investors if the stock were to fall.
"In terms of consumer discretionary stocks, two names we favor are Office Depot and JC Penney," says Dietze.
"JC Penney has over 1,000 stores in North America and is a good play at a low valuation on the consumer not staying in his cave should Fed rate cuts come along. At 11-times earnings it's a good place to be," continued Dietze.
Office Depot , says Dietze, has grown its reach "catering to small and medium businesses and not just retail channel and has exposure to 25 counties giving it a big geographic reach."
David Leibowitz, managing director at Burnham Securities, likes stocks in the consumer sector which meet criteria that include yearly increases in dividends and stock repurchases funded from cash flow.
Chris Jenner, manager of the T Rowe Price Health Sciences Fund says healthcare stocks do well when the economy slows and the Fed eases. "We're entering into a good period for healthcare stocks, says Jenner.
Healthcare stocks have been laggards -- up 5% over the past year versus a 13% gain for the S&P 500.
Meanwhile, a snap survey by CNBC shows Wall Street investment strategists and money managers are generally bullish on the stock market for the month of September. After a turbulent July and August, 65% of those responding say we've "seen the bottom of the stock market correction." In the survey on August 17, a smaller majority of 55% thought the worst was over.
Most of those answering Tuesday's survey are expecting a good month for stocks. Nearly 40% say the benchmark S&P 500 stock index will be up 1% or more, with 13% predicting a spectacular gain of 5% or more. Over 30% of those responding are expecting the S&P to drop 1% or more, and 30% are forecasting either no change or a slight increase.