There seems to be no end to poor economic news these days.
But, as some financial analysts say, an uncertain economy and a volatile stock market can be a time of great opportunity for investors.
Tuesday?s 370-point loss for the Dow Jones Industrial Average pushed the Dow down 7.5 percent in the first five weeks of 2008. The tumble followed news that the nation?s service sector shrank for the first time in five years, another sign that a U.S. economic recession might be on the horizon.
During trading hours Wednesday, the Dow recovered slightly on a positive worker productivity report from the Labor Department.
So where should investors put their money during a time of uncertainty and volatility?
Brian Rogers, chairman and chief investment officer for T. Rowe Price, said there are opportunities in sectors that investors have all but abandoned. The cyclical nature of the economy means these forgottensectors should eventually recover.
“Taking a three-year view, as a value investor, you have to look to sectors of the marketplace and individual companies where there is a pattern of stress and controversy and undervaluation,” Rogers said during a recent panel discussion on the current stock market environment.
That means, Rogers said, investors should consider companies that have been the bad-news leaders in recent months ? banks, investment banks, companies dependent on consumers and companies related to housing.
“The most difficult sectors usually are the ones that, for a value strategy, present the best opportunity prospectively over the next couple of years,” Rogers said.
Bill Stone, chief investment strategist for PNC, said there will likely be more bad economic news to come as the Federal Reserve?s rate cuts take time to stimulate the economy. One positive sign, though, is that lower rates are driving refinancing and could spur home buying, Stone said.
In the short term, Stone suggests investors stick to big-name U.S. companies that deliver results even in the worst of economic times ? companies such as IBM and Coca-Cola.
“Extreme negative sentiment has historically signaled a good contrarian entry point into stocks,” Stone said. “As the economy and earnings slow, investors should prefer high-quality and well-capitalized companies that can continue to deliver earnings growth.”
