It's been a sticky summer for market bears.
Stocks are making them sweat about missing out -- by rising 11% since July 10, and 4% last week alone, with a convincingly large volume of shares changing hands.
Optimistic bulls are cheering the sheer number of surprisingly good profit reports, while pessimistic bears complain that those sunny numbers are merely the result of cost-cutting. They're stubbornly sticking to the sidelines, waiting for more signs that the recession is at an end.
That's a risky strategy. In the summer of 1982, near the end of the last recession billed as "the worst one since the Great Depression," the market put in an enormous 45% move off the bottom.
Bears didn't concede until the next summer that the recession had ended. By then, they'd missed out. The market had advanced 75% from the bottom.
Taking a lesson from that experience, Wells Fargo market strategist James Paulsen cautions against "waiting too long before returning to the stock market."
Instead, it makes sense right now for long-term investors to buy stocks on the pullbacks that inevitably follow a big rally. "We expect investors will be seeking market dips to put money to work, thus we expect market pullbacks over the next few weeks to be short and shallow," says Davidson market strategist Fred Dickson.
What to buy? Value stocks that look cheap based on ratios that compare share price to earnings to sales or to book value, because they may offer more upside in any economic recovery ahead. Real value, not a low stock price, is what makes a good cheap stock.
Here are 17 to consider if pullbacks take their prices back toward where they traded in mid-July.
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One trick to buying stocks in a recession is to look for companies with solid financial strength that also do an excellent job of providing life's basics. That way you know they'll be around a year or two from now when the economy has recovered -- and their stocks will presumably be much higher. Here are four examples.Whirlpool (WHR, news, msgs): Stu Feldstein, a housing sector expert with SMR Research in Hackettstown, N.J., predicted the real-estate crash as early as 2003. Now, he's says he thinks the housing market's fledgling turnaround will last, partly because houses are so affordable given low interest rates and lowered prices.
Whirlpool will get a big boost from this turnaround, he says. "Appliance sales and home sales have always gone together." Whirlpool has advanced sharply in the past 10 days to trade around $55, so it may pay to wait for a pullback closer to $50.
The stock qualifies as cheap since it trades for just 11.6 times earnings per share over the past 12 months, well below its average high of 14.8 times over the past five years, according to Reuters. Whirlpool also pays a 3.1% dividend while you wait.
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Is the recession really ending?A CNBC panel discusses whether the recession has ended and what shape the recovery may take. (July 27)
Automatic Data Processing (ADP, news, msgs): Not surprisingly, investors flee payroll companies when recessions hit -- on fears that the companies will have less work to do as unemployment rises. But that gives long-term investors a chance to buy ADP on the cheap, says Larry Coats Jr., a value investor who was recently adding the stock to his Oak Value Fund (OAKVX) at around $35 per share.
At recent prices of $37 a share, Automatic Data Processing sells for around 15 times forward earnings; it's only traded that low twice in the past 15 years.
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Coats likes the company's solid cash position and healthy cash flow, which give it the strength to weather this downturn. Plus it's a leader in the space and is expanding globally, so it should do well once the economy comes back.
Monsanto (MON, news, msgs): Recession or no, the world's population continues to grow. But the amount of land used to grow food stays roughly the same. So farmers need to get more out of available acreage -- and that's where Monsanto comes in.
Once primarily a chemical fertilizer company, Monsanto continues to plow big money into the higher-margin business of developing pesticides as well as plant strains that resist pests. Despite this shift, it's still looked at as a chemical company by many investors, so it's misvalued, says Coats, who recently added the stock to the Oak Value Fund.
The stock advanced sharply last week. But it's still a cheap buy -- especially on any pullbacks -- given that it's down about 40% from highs of about $140 last year.
Continued: Is a comeback ahead for Hasbro?
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