WEEKEND PICKING

Barrons has more good stuff this week and I am going to talk my book and cherry pick the longer term bullish stuff.

Mike Santoli with the following from his Inbox:

• Prior to the onset of recession, there's typically at least a 25% one-year rise in weekly unemployment claims. The increase in claims in December was less than 7%. So a recession is not imminent.

• The average decline in the S&P 500 from a pre-recession peak to a trough since 1945 has been 25%, just a few percent more than the index had lost from its 2007 peak to its intraday low Wednesday of last week. So, maybe the market has mostly discounted a typical recession scenario?

• Every one of the 23 times since 1987 that the ratio of bears to bulls in the weekly American Association of Individual Investors poll has exceeded two (as now), the market was up 12 months later, by an average of 21%.

But stocks have already been repriced to reflect expectations that published estimates are too high. The current S&P 500 forecast could be chopped by 10% and still market valuations wouldn't appear extreme at current prices. But the market's real-time response to muted corporate outlooks will deliver the true verdict on whether the market has built in enough fear.

Bear Beaters (10) from Andrew Bary via Mark Boyar:

The 10 liked by Boyar include:

COP FCX CBS DIS MO CB MOT CMI BA GE - I will go with COP FCX DIS MO CMI as my favorites in the group-

More rationale for why stocks are cheap-

At midweek there were nearly 70 companies in the S&P 500 with price/earnings ratios below 10, including Pfizer (PFE), Liz Claiborne (LIZ), Harley-Davidson (HOG), Dow Chemical (DOW) and MetLife (MET). Nearly 50 companies were trading at or below book value. These included home builders, a bunch of banks and some surprising names such as Time Warner (TWX), CBS (CBS), Citi, Fannie Mae (FNM), Gannett (GCI) and Barry Diller's IAC/InterActiveCorp (IACI). The ranks of stocks with such low price/earnings and price/book ratios historically have proven a good place to find value.

In the overall market, shares appear reasonably priced, barring a sustained economic downturn. The stocks in the Standard & Poor's 500 stock index are now valued at 14 times estimated 2008 profits. That makes for a return, or earnings yield, of about 7%, which is roughly double the 3.6% yield on the 10-year Treasury bond.

Little wonder Tom McManus, the equity strategist at Bank of America, raised his recommended equity allocation to 65% from 60% last week, telling clients stocks look good versus bonds. He and other Wall Street strategists maintain that the S&P 500 can jump around 10% this year from its current level. And that doesn't include an added 2% in dividends.

The key risk is that the U.S. could slip into recession, causing profits to disappoint. But at least some of that danger seems to be priced into stocks at current levels.

However, be advised that McManus gave a year end SPX target of 1,625 about three weeks ago, (10% from here- approximately 1,465- how come this stuff doesn't ever get mentioned).

Finally, Forbes columnist Laszlo Birinyi on what a recession may mean for stocks:

"Many bears expect a recession, which they assume is poison for market performance. Not quite. In the 11 recessions since World War II the market has averaged a 3% gain, despite the inclusion in that data set of the 23% decline in 1974. During 6 of those downturns the S&P went up. If 2008 is a recession year, it is not automatically fated to be bad for stocks."

And for the Bears, here is Random Roger with some bearish factoids.