Stocks looking cheap to some investors

Given the credit crisis and recession worries, it's no surprise investors are wary of stocks.

But not Brian Rogers, chief investment officer at T. Rowe Price, which manages nearly $400 billion. "Good things normally happen from where we are right now, even when there is very little visibility to point to," he says.

Based on a valuation known as earnings yield — the inverse of price-earnings ratio — stocks look more attractive than bonds, as measured by the 10-year Treasury yield. The earnings yield of the S&P 500 is now around 5.5 percent, while the 10-year Treasury yields are about 4 percent.

With an "attentive" Federal Reserve and plenty of cash sloshing around, Rogers says he "can't be bearish on equities." He likes Hershey (HSY) and Home Depot (HD), which he calls "the chicken way" to play an eventual housing recovery. He also points to beaten-down financials, such as Merrill Lynch & Co. (MER), which has nearly halved this year.

Clover Capital Management's Matt Kaufler, who co-manages the Touchstone Value Opportunities Fund (CCEVX), thinks the "environment for financials will get worse before it gets better." But he also is eyeing Merrill Lynch, as well as Sovereign Bancorp (SOV). "Both are great consumer franchises and are out of favor, and there have been management changes at both," he says.

For about 18 months, Kaufler has been focusing on defensive sectors like consumer staples, utilities and health care. But the fund also has about 25 percent in financials, including US Bancorp (USB), Assurant (AIZ) and Bank of New York Mellon (BK), which he says have little exposure to risky lending practices.

Kaufler also suggests companies involved in spin-offs, such as media company E.W. Scripps (SSP) and cigarette producer Carolina Group (CG). Restructurings, management changes and new regulations can boost the right stocks even if the market stumbles.

"Investors should look for companies at an inflection point in their life cycles," he says.