For many Americans , 2010 was the year of frustration. In poll after poll, they expressed their dismay about the economy, budget deficits, even how the TV show Lost ended. But where they may have channeled their angst most was toward the U.S. stock market. True, the Dow enjoyed a nice run-up in the fall, but a look at mutual fund statistics shows Main Street wasn't a part of this party. Indeed, Joe and Jane Investor weren't even interested. Fed up with Wall Street flash crashes and roller-coaster volatility, investors took $77 billion more out of U.S. stock mutual funds than they put in. Even as the market marched a hefty 14 percent higher during three months late last year, investors fled the market.
For a small but growing number of savvy investors, however, uncertain times almost always offer some opportunities. And 2011 will be no different, they say. This group argues that the pessimism that has engulfed the nation has kept ordinary investors from seeing some fantastic stock bargains—most notably, large U.S. companies. "The S&P 500 is cooking right now in terms of earnings," says John Buckingham, manager of the $110 million Al Frank fund, who has been buying large firms such as Comcast ( CMCSA ) and Coca-Cola. Certainly, history is on the side of pros who make the boldest moves in dark times. Things seemed dire for both the economy and the markets in spring 2009. But the market looked incredibly cheap, and the people who abandoned stocks then missed out on a six-month, 50-plus percent rally.
Of course, Wall Street is still a hard sell for many investors, if only because their portfolios are still nowhere near the premarket crash levels of 2007. "No return for 10 years and two big declines; I think that has people less interested in these stocks," says George Sertl Jr., a manager of the $276 million Artisan Opportunistic Value fund. But large-company stocks, from General Electric ( GE ) to McDonald's, are trading, on average, at a price/earnings valuation of 14.8, the lowest they've been since the financial crisis (and before that, since 1990), according to stock-research firm Birinyi Associates. The more well known the company, the cheaper its stock seems. "One would expect companies with age-old traits like leading market share and strong balance sheets to trade for more than the market, and they don't," says Douglas Cohen, head of Morgan Stanley ( MS ) Smith Barney's Strategic Equity Portfolio Group.
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