Stay in Miners, but Keep an Eye on Banks

The resource sector is still the smart investment now, while those attracted to beaten-down financial stocks should proceed with care, analysts told CNBC Europe.

Many have predicted a correction in commodities and basic resources, but with little alternatives in the stock market, the money will continue to pour in, Graham Bibby, CEO of Richmond Asset Management said.

"You can do it through energy or resource type funds or you've got all the well known names the BHPs, the Rio Tintos. So the commodity and the energy sector are still in a major boom market," Bibby said.

Banks are beginning to look attractive and some investors may think now it is the time to dive in, but the bad news isn't out of the way yet, Jason Forde, fund manager at Kepler Landsbanki said.

"If you recall two, three months ago many market participants were saying that the worst was behind us… Suddenly we've hit this wall in June… now everyone is saying well hang on a second, does anyone know how to get out of this darkened room?" Forde said.

Recent gains were only a short-lived bear market rally and investors should continue to stay on the sidelines as bank stocks are still vulnerable, Forde said.

Investors should keep an eye on financials to grab the right moment to jump in, which is not that far, Bibby said.

"As we see more and more layoffs, get ready for a turnaround and when you start to see the turnaround, then is the time to take the action," Bibby added.

© 2008 CNBC.com