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ICON President Sees Value Everywhere

Gregg Greenberg

What if Wall Street announced a holiday sale and nobody shopped?

"Right now U.S. stocks are 30% below our estimate of fair value," says Craig Callahan, president of ICON Advisers. "With a current domestic value-to-price reading of 1.32 and the Federal Reserve having eased monetary policy, we expect the ultimate breakout to be to the upside."

ICON's value-to-price ratio is a ratio of the intrinsic value, as calculated using its proprietary valuation methodology of a broad range of domestic and international equities within ICON's 2,000-stock universe, as compared to the current market price of those equities. Callahan, a devotee of value investing forefather Benjamin Graham, says European stocks are 20% undervalued, according to his model.

In terms of countries, Taiwan has the most bargains in Asia while Switzerland ranks the highest in Europe, which is why Nestle is one of his top holdings.

"Just like in the U.S., there is attractive valuation overseas, and we think riding through the current volatility will be rewarded," says Callahan.

For those investors too afraid to wade into the market's choppy waters, Callahan suggests health care stocks due to their low correlation to other sectors in the market.

"Should consumer sentiment and spending drop, one would expect to see prices fall in the consumer discretionary, leisure, and industrials sectors, as all are heavily dependent on the strength of the consumer," says Callahan. "The health care sector, however, would feel little impact since consumers still need their medications and related goods."

(ICHCX - Cramer's Take - Stockpickr)ICON's Healthcare fund is up 8.6% year to date, 60 basis points better than the S&P 500. Pharma giants Johnson & Johnson(JNJ - Cramer's Take - Stockpickr) and Merck(MRK - Cramer's Take - Stockpickr) combine to make up 12% of the fund's assets.

Callahan says its financials keeping the overall market from reaching its potential. While the banks and brokers have attractive valuations, subprime problems have sapped the relative strength from the group, another metric measured by ICON. The (ICFSX - Cramer's Take - Stockpickr)ICON Financial fund is down 4.6% so far this year, trailing the S&P by 12.5 percentage points.

"Financials are the mystery since they have value but not strength," says Callahan. "If that would kick in, then we would jump all over it. And the market would too."