3 cheap stocks for a pricey market

But investors are missing an opportunity. DuPont's chemicals business isn't in anything like the dire shape that some investors fear. The company got almost 60% of sales from outside the United States in 2006, and that business offsets much of the company's exposure to any U.S. slowdown. (The boost that DuPont gets from a weak dollar doesn't hurt, either.) Also, DuPont's big agriculture business is set to reverse a decade-long slide in market share in 2008. The company's board members are believers, too. They just raised the stock's dividend, to an annual rate of $1.64, for the first time in two and a half years. As of Oct. 31, the stock yielded 3.4%.

With this column, I'm going to add shares of Pentair, Marriott and DuPont to Jubak's Picks. Watch to see if I'm patient enough to ride out the bumps and collect the potential rewards.

Updates to Jubak's Picks

Sell Apache (APA, news, msgs):

It's been a great run, if much briefer than I had imagined. But now it's time to sell shares of Apache. The stock hit my price target and kept on running as oil moved to $94 a barrel. I still think oil -- and shares of Apache -- are headed higher in the long run. But in the short run, it's clear the oil market has run too far and too fast and is ready for a correction, just like the markets for other commodities. With speculation accounting for as much as $17 of the price of a barrel of oil now, the correction, which I think would be of short duration, could be intense. I'm going to take my profits here -- Apache shares have gained 21% since I added them to Jubak's Picks on July 17, 2007 -- and wait for the next dip in the oil sector.

Sell iShares Comex Gold Trust (IAU, news, msgs):

The trust hasn't hit my July 2008 target price of $84 a share, but it's within 6% of it. Gold has rallied so fast that I think the risk in owning the metal has increased, and with the fundamentals looking a little shaky -- demand in India, the biggest market for physical gold, isn't growing as fast as once projected -- I don't think waiting around for a 6% potential gain is worth the risk, especially because I've got some "buy" candidates with more potential and less risk (in my opinion). These shares are up 11% since I added them to Jubak's Picks on Sept. 11, 2007.

Buy DuPont (DD, news, msgs):

I'm trying to add another farm stock to Jubak's Picks on the cheap. Well, relatively cheap. This blue chip never gets really cheap because of its legion of buy-and-hold fans, but with a recent price-to-sales ratio of 1.47, the shares are cheaper on that ratio than at any time during the past 10 years. The price is relatively low now because investors aren't rushing to buy a chemical company as the cost of raw materials -- that is, oil and natural gas -- climb and as the U.S. economy, particularly the housing and auto markets, slow. (For example, DuPont is one of the largest suppliers of auto paint in the world.)

But for your money, you get a piece of DuPont's big agriculture business just as it's set to reverse a decade-long slide in market share. The company's Pioneer division, No. 2 in the world to Monsanto (MON, news, msgs), will pick up market share in the corn-seed market in 2008 and see sales rise by about 10%. (You also get the No. 1 share in corn and a 10% share in soybeans in Brazil.) And the chemicals business isn't as bad as many investors think, since about 60% of DuPont's business is outside the United States and gets a solid boost from a weak dollar.

In addition, the company just raised its dividend by 11%. That's a strong vote of confidence. As of Oct. 31, the shares showed a yield of 3.4%. As of Nov. 2, I'm adding these shares to Jubak's Picks with a target price of $56 a share by June 2008.

Buy Marriott International (MAR, news, msgs):

Everybody's building high-price hotels in China, but the real growth is in the midprice slice of the market. That's where Marriott shines. The company will open its first Courtyard by Marriott in Hong Kong in December and has just announced that it will build 20 more hotels in the country. And China isn't the only overseas growth market Marriott is tackling. About 50% of the company's 115,000 planned new rooms will be outside the U.S. Because of a third-quarter earnings miss, the stock is selling at a price-to-sales ratio of just 1.12. As of Nov. 2, I'm adding the shares to Jubak's Picks with a target price of $56 a share by October 2008.

Buy Pentair (PNR, news, msgs):

This fallen Wall Street favorite sells at a bargain price-to-sales ratio of just 1.05. About 70% of Pentair's sales come from water: pumps, control valves, storage tanks, filtration systems, and pool and spa accessories. With demand for clean water growing around the world, Pentair was among a small group of water pure plays that Wall Street loved. The price-to-sales ratio climbed to 1.94 and the price-to-book value ratio to 3.04. Then came the housing slump, and sales of Pentair's pool and spa equipment tumbled, falling 9% in the third quarter.

But only 15% of the company's sales are exposed to the U.S. housing market. And the rest of the long-term-growth story at Pentair is not only intact -- it's been getting stronger. The company has acquired a German maker of wastewater pumps, added a joint venture in China to produce water-filtration products and cut costs by moving some manufacturing to Mexico, China and Poland. Profit margins in the company's water business hit bottom at 10% in 2006 and look to rebound to 12% this year and to 15% in 2008. As of Nov. 2, I'm adding these shares to Jubak's Picks with a target price of $42 a share by October 2008.

Developments on past columns

"Can tech stocks spark a 2007 rally?": SiRF Technology Holdings (SIRF, news, msgs) has clearly -- finally -- turned the corner. The company announced third-quarter results that knocked the ball out of the park. SiRF beat Wall Street earnings estimates by 7 cents a share and reported revenue of $91 million, above Wall Street projections of $86 million. Earnings, excluding one-time charges, grew by 32% from the third quarter of 2006, and revenue climbed by 43%.

Even better, the company raised projections for fourth-quarter earnings to 33 cents a share, above the Wall Street consensus of 26 cents, and revenue to $99 million to $102 million versus the consensus of $98 million. Unit growth in the personal-navigation-device market is now running at better than 100% a year, which is not unexpected, and SiRF told analysts that it thinks it has a chance to maintain market share in 2008 and to maintain gross margins of 54% to 55% -- both of which are unexpected. About 84% of revenue in the quarter came from the Asia-Pacific region. The stock soared 28% the day after the company reported results. As of Nov. 2, I'm raising my target price to $36 a share by December 2007. (Full disclosure: I own shares of SiRF Technology Holdings in my personal portfolio.)

"Mine takeover targets for gold": Nothing complicated here. Gold has soared -- it was up 25% in 2007 as of Oct. 31 -- on fears of inflation and a weak U.S. dollar. Gold stocks, where earnings go up faster than gold prices, have outperformed just like they're supposed to. Kinross Gold (KGC, news, msgs), for example, was up 66% for 2007, as of Oct. 31, and an even more stunning 80% from the Aug. 15 stock-market bottom.

With the Federal Reserve cutting interest rates again Oct. 31 and the dollar taking another dive on the news, gold rallied again, hitting a 28-year high of $795 an ounce in the spot market that day. The all-time record gold -- not adjusted for inflation, mind you -- is $850, set in January 1980. The question now is whether the climb is too far and too fast. Gold stocks could be set up for a correction if the momentum money decides to move elsewhere. I think the U.S. dollar will continue to fall in the short run and that gold will continue to climb over the next few weeks or months. But an 80% gain in two and a half months is exactly the kind of advance that is likely to produce a correction in the not-too-distant future.

Deciding when to sell Kinross Gold and other gold stocks is especially difficult. Despite any correction, I think that over the long term the U.S. dollar will continue to weaken and that inflation will increase and gold prices will climb. I'm going to stick with Kinross Gold for now, especially because I want to see the effect of the company's earnings, due to be reported Nov. 7 after the market close.

As of Nov. 2, I'm going to leave my target price where it is -- $19 a share by December 2007 -- until I can see what numbers the company reports. Production volumes will be important, of course, but the key is whether costs continue to climb at the rates of the past few quarters. (Full disclosure: I own shares of Kinross Gold in my personal portfolio.)

Meet Jubak at The Money Show

MSN Money's Jim Jubak will be among more than 120 investment and finance experts sharing buy-and-sell advice at The World Money Show in Orlando, Fla., Feb. 6-9. Invest four days dedicated to planning and refining your portfolio by attending the event's more than 320 workshops and panel presentations. Admission is free for MSN Money readers. Call 1-800-970-4355 and mention priority code No. 009554, or register online today.

Editor's note: Jim Jubak, the Web's most-read investing writer, normally posts a new Jubak's Journal every Tuesday and Friday. Please note that recommendations in Jubak's Picks are for a 12- to 18-month time horizon. For suggestions to help navigate the treacherous interest-rate environment, see Jubak's portfolio of Dividend Stocks for Income Investors. For picks with a truly long-term perspective, see Jubak's 50 Best Stocks in the World or Future Fantastic 50 Portfolio. E-mail Jubak at jjmail@microsoft.com.

At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Kinross Gold and SiRF Technology Holdings. He did not own short positions in any stock mentioned.

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