If you're nervous about the stock market, you're not alone. But even amid all the uncertainty surrounding the economy right now, you can pick up some good values on attractive, high-quality stocks if you think something other than the worst-case scenario will end up happening.
A depressed market
You'll always find permabears who believe that the sky is falling. However, today's pessimism isn't confined just to the usual Chicken Littles. Even well-respected market experts like Peter Schiff believe we're in the early stages of a depression that could send commodities prices soaring, while leaving many investors in U.S. stocks and bonds suffering huge losses.
Because of those fears, many stocks are priced at extremely attractive valuations right now. With short-term interest rates near zero, price-to-earnings ratios of 10-12 imply a risk premium for stocks of 8% to 10%. You can find relatively cheap stocks across the economy, from traditionally defensive sectors to cyclical and even growth stocks. Let's look at some of these bargains, the short-term reasons why they're trading cheap, and why they might make good investments going forward.
When I talk about "defensive stocks," I'm referring to companies that traditionally hold up fairly well, even during periods of slow economic growth. After all, no matter how bad things get, there are certain things that people need to buy; the companies that provide those goods aren't completely immune from recessions, but they often see less dramatic downturns in their financials than producers of goods that people can live without.
Johnson & Johnson
Other stalwarts are facing similar short-term problems. Wal-Mart
Playing the cycle
You might expect defensive stocks to underperform at the end of an economic downturn. But cyclical stocks are also struggling. Freeport-McMoRan Copper & Gold
For European steel giant ArcelorMittal
The technology industry is known for ridiculously overpriced stocks that stay overpriced all through their lengthy growth periods. Right now, though, even tech is cheap.
No one can say that Microsoft
Even among faster-growing stocks, valuations have become reasonable. Even after tripling in price in a year and a half, Apple
Many investors are ignoring this opportunity, piling instead into Treasury bonds that pay 2% to 3% or less. Don't make that mistake. Given how rare it is to have opportunities to buy stocks like these at bargain prices, you won't want to count on these deals lasting forever.
Do you think I'm crazy to like stocks? Let me have it in the comments section below.
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Fool contributor Dan Caplinger loves a great value. He doesn't own shares of the companies mentioned in this article, although he owns ETFs and funds that include some of them among their holdings. Microsoft and Wal-Mart Stores are Motley Fool Inside Value recommendations. Apple is a Motley Fool Stock Advisor pick. Johnson & Johnson is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson and a diagonal call position on Microsoft. The Fool owns shares of Exxon Mobil. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy never ignores you.