19 solid stocks on sale now

A review of Fed chief Ben Bernanke's published work suggests that, like Alan Greenspan before him, he puts a big premium on keeping the financial system healthy after severe stock market crashes, like the ones in 1929 and 1987, says Ed Yardeni of Yardeni Research. Like Yardeni, I think this means it is safe to assume that Bernanke will do what's needed to keep fears in financial circles from turning into a full-fledged credit crunch that kills growth.

This economy's no weakling

Meanwhile, all the market turbulence has made people forget that the economy still looks great. Economic indicators released last week showed that disposable income, retail sales and industrial production were strong in July. Employment remains strong. Exports were strong in June. S&P 500 companies posted earnings gains of more than 8% in the second quarter.

Sure, all of this could reverse quickly. But the conditions aren't there for that to happen, says Paulsen. The 10-year bond yield, at around 4.7%, still remains at levels normally associated with decent growth. The federal government is still spending more than it takes in -- which boosts economic growth. The dollar is still low. That makes our goods cheaper abroad, amplifying the kick to our economy from strong global growth. Liquidity is abundant. "If this is a crisis, we are going into it with a good fundamental backdrop," says Paulsen.

• Video: Fed's discount rate cut good news for banks

If the economy does slow, the Fed will likely cut its fed funds rate -- the interest rate that banks charge each other for overnight loans -- in September and October, predicts Yardeni. For political reasons, it's important to Bernanke, who was appointed by the Bush administration, to have the economy sound this time next year just ahead of the presidential elections. That would require cutting rates in October to have the full impact feed through to late summer, next year.

Insiders in love

Corporate insiders are also telling us it's time to buy, too. While insider selling has dried up, buying has increased in cyclical sectors like consumer goods, services, technology, basic materials and even finance. Insider sentiment is "firmly in bullish territory," says Ben Silverman of InsiderScore.com.

The best stocks to buy in this environment are the quality names in cyclical sectors. Dividend plays in cyclical sectors should do well because stocks with high yields tend to get a boost from interest-rate cuts. To find quality stocks in these areas, I've turned to money managers with solid records who also pay close attention to financial strength. I'm also suggesting stocks where insiders are buying.

A lot of the current panic selling comes from hedge funds getting margin calls from lenders who are nervous because the hedge funds have subprime-mortgage exposure. "So you are seeing the liquidations of good stocks, because there is nowhere else to liquidate," says Craig Hodges, co-manager of the Hodges Fund (HDPMX), which has beaten the S&P 500 by more than 11 percentage points a year on average for the past five years.

It's easier for hedge funds to sell stocks into strength, rather than sell weaker names that are already down a lot. "When you can buy good stocks at a 20% discount from where they were a few weeks ago with no fundamental reason for them to go down, I think you have to do it," says Hodges.

Basic materials, manufacturing and energy

Three stocks in Hodges' fund that fit the bill in these groups are: Potash Corporation of Saskatchewan (POT, news, msgs), which sells fertilizers and feed products; Texas Industries (TXI, news, msgs), which sells cement; and Transocean (RIG, news, msgs), a deep-water driller.

John Buckingham, who edits the top-ranked Prudent Speculator investment newsletter and manages the Al Frank Fund (VALUX), likes Alcoa (AA, news, msgs), which sells aluminum; Nucor (NUE, news, msgs), which makes steel; and Joy Global (JOYG, news, msgs), which makes mining equipment used worldwide.

Retail

In retail, Buckingham likes Best Buy (BBY, news, msgs), which has had strong insider buying, and Bed Bath & Beyond (BBBY, news, msgs).

Insiders have also been big buyers recently of Barnes & Noble (BKS, news, msgs), The Gap (GPS, news, msgs), Panera Bread (PNRA, news, msgs) and Polo Ralph Lauren (RL, news, msgs).

Technology

In technology, I've seen big insider buying recently at Tyco Electronics (TEL, news, msgs) and Amkor Technology (AMKR, news, msgs), a chip assembly and testing company.

Buckingham likes Texas Instruments (TXN, news, msgs) in the current weakness.

Dividend plays in cyclical sectors

Stocks that pay a decent dividend yield tend to get a boost as interest rates fall. Or at least you know they won't be damaged by rate increases in the coming months. Thomas Cameron, who manages the Dividend Growth Trust Rising Dividend Growth Fund (ICRDX) , likes dividend plays that have a strong record of increasing dividends and are likely to keep raising them. In this category, he favors Natural Resource Partners (NRP, news, msgs), which operates coal mines; Williams Partners (WPZ, news, msgs), an energy pipeline company; McDonald's (MCD, news, msgs); and General Electric (GE, news, msgs).

At the time of publication, Michael Brush owned shares of the Al Frank Fund.

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