The Guru Investor Blog

According to SmartMoney, Zerhusen bought shares of firms like media giant Gannett and speech-technology firm Nuance Communications when the market declined this year. She says improved earnings in the spring and reports of components shortages are encouraging signs. "I wouldn't have said it a month ago, but I think the recovery has legs," she tells SmartMoney.

Zerhusen takes a long-term approach, and invests in a focused portfolio of 35 to 40 firms, SmartMoney reports. She keys on stocks with market caps of $1 billion to $12 billion, which she says are “largely ignored”.

SmartMoney says Zerhusen’s buys tend to focus on one or two business lines, and sell “must-have” services or products. And she compares price/sales or price/earnings ratios to a firm’s growth to find bargains. She also seems to have a contrarian streak — "your best ideas are often when people think you are crazy," she says.

Click here to read the full article, which includes some of Zerhusen’s stock picks.

Fisher writes in his latest Forbes column that the last correction that was this textbook was the 1998 correction, which was fueled by the Asian contagion, the Russian ruble crisis and the Long-Term Capital Management hedge fund debacle. ” Like that one, this year’s minicrash had been pushed along by several scary stories that turned out to be nonsense but were nonetheless impossible to dispel,” Fisher writes, citing the PIIGS debt “hysteria” as a major example.

A double-dip recession is extremely rare — and “simply inconsistent” with the strong earnings data coming from Corporate America, Fisher adds. “Why do so many fear something that has pretty much never happened?” he asks. “Because we always do that early in a big bull market after a huge bear market. At some later point false fears are seen as that. At that point the rebound will resume.”

Click here to read the full column, which includes several of Fisher’s stock picks.

While investors have been pouring into U.S. Treasuries, Arnott says the U.S. — and many other developed countries — aren’t the place to be when it comes to sovereign debt. “Bond investors are lenders,” he says. “Why should we deliberately choose to lend more to those who are most deeply in debt?”

Arnott measures a country’s ability to finance its debt by comparing its debt level to its “economic size”, which he calculates using four factors: capital (using gross domestic product); labor (using population); resources (using landmass as a proxy); and energy (using aggregate energy consumption). His findings: A small number of developed countries — including Australia, Poland, Slovakia, Canada, and Sweden — are in solid position when it comes to financing their debt. But other developed nations — including the U.S., though it’s a bit better off than other G-5 nations — aren’t all that different than the much-maligned so-called “PIIGS” (Portugal, Italy, Ireland, Greece, and Spain) when it comes to debt financing ability.

The really attractive areas based on ability to finance debt, according to Arnott: emerging markets. “One might reasonably argue that — absent political risk — emerging markets are collectively more creditworthy than U.S. Treasuries,” he says. “Which invites a provocative question: when will U.S. Treasuries be priced to offer a ‘risk premium’ (higher yield) more than the most stable and solvent sovereign debt that money can buy: Emerging Markets?”

It’s a question Arnott certainly seems to think is worth considering — he says that the ” looming sovereign debt crisis will be one of — if not the — defining influences on capital market returns over the next 10 years.”

“Although rhetoric surrounding a double-dip recession has increased throughout the summer, we remain relatively optimistic that economic growth will remain positive (albeit low) and that from a sentiment and valuation perspective, the stock market appears relatively attractive,” Sonders (along with Schwab’s Brad Sorensen and Michelle Gibley) writes in her latest market commentary on Schwab’s web site.

Sonders, Sorensen, and Gibley say that volatility will continue, but add that “alternatives to stocks are relatively unattractive,” with bond yields near all-time lows and interest rates on cash deposits at virtually zero.

Sonders and her colleagues also say bad recent housing numbers ” should be taken with a grain of salt”, skewed by the expiration of the housing tax credit. They think that “historically low mortgage rates and record affordability will help support the housing recovery — but that it will be a slow process and could bounce along the bottom for some time.”

The Schwab trio point to the yield curve and leading economic indicators as signs the U.S. is not headed into another leg downward for the economy. And they say they see a global double-dip as a “low-probability event”, with emerging market economies helping pick up the slack from more developed areas of the world that have slower growth. The strong growth in emerging markets and the below-average multiples of stocks in those areas “gives [emerging market equities] the ability to continue to outperform developed-market stocks,” Sonders and her colleagues say.

While many investors are focused on hot-growth emerging market areas, Herro’s exposure to emerging markets is just 7%, SmartMoney reports. Herro tells the magazine that when a sector gets hot, "people like the story — and we avoid those."

“These days, while Herro stops short of calling emerging markets a bubble, he thinks European and Japanese blue chips are a better way to tap growth abroad,” SmartMoney reports, adding that Herro has about 60% of his fund invested in Europe. He believes the declining Euro will end up helping the economy there.

The article also discusses some of Herro’s past successful contrarian moves, and offers a few of his current picks.

Stattman tells Bloomberg that blue chip companies like  Johnson & Johnson and Microsoft have global franchises, strong cash flows, and solid dividend yields these days. “We can't find a stock among the 20 or 30 biggest U.S. companies that looks expensive," Stattman says. He adds that because these big firms have global businesses, they can reap the benefits of faster-growing markets in Asia.

"Good management teams at these companies will put the earnings to work and increase the value of the businesses over time," said Stattman, who is holding much less in Treasuries than his peers. "I would rather own good companies with managements that go to work every day than a piece of paper from the government of which there will be more next week and the week after," he says. "Ten years from now we may look back and say, 'Man, what were people thinking buying long-term bonds at those yields.' "