Yesterday seemed like a banner day for lousy economic news. So far, I've seen:

  • New home sales in January dropped 11% to an annual rate of 309,000, the lowest on record. And never mind new construction -- builders like Toll Brothers (NYSE: TOL) still have months' worth of already-built new houses in backlog.
  • The FDIC reported that bank lending last year hit its lowest level since 1942 -- the low point (at least from a U.S. perspective) of World War II. And more than 5% of existing loans were at least 90 days past due -- the highest level since the agency began collecting that data 26 years ago.
  • Consumer confidence fell to its lowest level in 10 months, and retailers including Home Depot (NYSE: HD), Target (NYSE: TGT), and Nordstrom (NYSE: JWN) warned that sales gains will continue to be slow in coming months.

I'm not the only one who's not feeling irrationally exuberant. Federal Reserve Chairman Ben Bernanke said on Wednesday morning that the U.S. economy is in a "nascent" recovery -- meaning one that's just starting to get under way and needs more support before it can become sustained. Interest rates, he said, will be kept low for a while longer yet, which suggests to me that the recovery isn't so much "nascent" as "just kinda sitting there."

That's sure what it feels like, isn't it? So here's the question I'm wrestling with: I've got some new money to invest. Should I do that now, or should I wait for lower prices?

Is the bear set to return?
This has been one heck of a bull run -- over 60% since the economic fear peaked last March. A pullback seems inevitable to me, and has for a while. More often than not, drops in consumer confidence as steep as this one have historically been followed by lousy market performance.

That's worrisome -- or it should be. And while I'm mindful of the old adage -- The market can stay irrational longer than you can stay solvent -- I'm also leery of committing new money at what could be a major peak. Yet there are places to look for stocks that are worth buying even during periods of economic uncertainty, and those are the places I plan to look.

You should take a look, too.

Here's what to buy
The trick when economic conditions are muddled -- at any time, really -- is to buy stocks that are undervalued. Those are, generally speaking, the stocks that will tend to decline the least should the market take a nosedive. And if you choose right, there's plenty of upside.

How to choose? Look where nobody else is looking.

The best large-cap stocks have many virtues -- that's why everybody on Wall Street is already following them. It can be hard to find good values among them, absent special situations. It's the small caps that sometimes escape major institutional notice -- and the price rises that come from institutional buying.

Small-cap value is, for me, the most intriguing corner of the market. Buying little stocks before Wall Street catches on to them is a great way to beat the crowd to a promising stock -- and increase your gains in the process.

Of course, often stocks are small and overlooked for good reason. But not always: Sometimes you find stocks like Net 1 UEPS Technologies (Nasdaq: UEPS). This South African firm makes smartcards that are usable for electronic payments ("UEPS" stands for Universal Electronic Payment System) in areas where access to banks is limited -- places like ... well, rural South Africa.

The company has no debt, solid management, great returns on equity, and a tremendous recession-resistant market opportunity that is still (for the moment) out of reach of potential big competitors like MasterCard (NYSE: MA) and Visa (NYSE: V). Somehow, though, it's almost completely ignored by Wall Street -- and trading at less than six times its free cash flow, compared to 25 or so for MasterCard.

That's the kind of stock you want -- the kind that guys like Warren Buffett can't buy. And that's the kind of stock my fellow Fools at the Motley Fool Hidden Gems service specialize in uncovering. They've got a whole bunch of great ideas for new money today -- no matter what the market does tomorrow.

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Fool contributor John Rosevear has no position in the companies named. Home Depot is a Motley Fool Inside Value selection. Net 1 UEPS Technologies is a Motley Fool Rule Breakers recommendation and a Motley Fool Global Gains selection. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.