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The Value is 'Out There' in Equities: Strategists

After the stock market falls in the past month, it should be possible to pick up some value in equities, market strategists told CNBC Wednesday.

Caroline Purser | Photographer's Choice | Getty Images

"There's still a bit of value out there," Mike Lenhoff, chief strategist, Brewin Dolphin, said. "You have to say to yourself, what are the alternatives?

"Cash is not an alternative. The Fed (Federal Reserve) is going to keep interest rates where they are for much longer than anybody thought. Bond yields are offering very, very little, below 3 percent," he pointed out.

On Monday, the US stock market suffered its worst point loss since December 2008. Tuesday saw a volatile session, with the Dow finishing up on the day after an unexpected statement from the Fed.

The Fed said Tuesday afternoon that it would keep interest rates near zero for at least two more years.

Lenhoff thinks the markets have now priced in apprehension about what lies ahead, including the possibility of a second recession in the US.

Last week's downgrade of the US' credit rating by Standard & Poor's has helped refocus attention on the world's largest economy and its problems.

"Day-to-day, markets aren't necessarily being driven by corporate earnings results," Simon Maughan, co-head of European equities, MF Global, told CNBC Wednesday.

"In sectors such as financials, where there have been huge concerns about capital for several years, there has been a change in focus in the way investors are approaching results."

Finance directors are being cautious in their estimates to increase their chances of surprising investors with better-than-expected results, Maughan said.

"Investors are moving ahead of analysts in anticipating reduced profit margins," he said.

He added that investors are also focusing on the margins of cyclical stocks.

Tobacco and spirits companies are Maughan's top picks, followed by pharmaceuticals, telecoms and re-insurance companies.

Lenhoff, whose company holds Vodafone shares, mentioned telecoms as a sector where it is still possible to find good yields.

"We are still going to see some earnings growth, allowing for loss of momentum and some earnings downgrades," he said.

"Fortunately, there is a larger part of the world that does not have any of the problems of developed economies. They are providing a lot of wherewithal for growth in corporate earnings.

Better-than-expected export figures for China in July, announced on Wednesday, have helped allay concerns that debt problems abroad may hold back the world's No. 2 economy, which is still expanding rapidly.

Consumer goods stocks in less vulnerable geographies, and categories where they can pass on cost increases to consumers, will perform better in coming months, while the sector in general is set for a bumpy run as commodity costs rise, Rahul Sharma, managing director at Neev Capital, told CNBC Wednesday.

Nestle, the world's biggest food company, raised its outlook Wednesday after a better-than-expected 7.5 percent rise in underlying sales in the first half of 2011, although net profit fell to 4.7 billion Swiss francs ($6.5 billion) after input cost rises.

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