Time to Start Speculating Again

Get ready to buy stocks. The summer/fall swoon that I expected is in full bloom and is creating reasonable long investment opportunities. Consensus investment strategy, whether bullish or not, currently centers on the theme of "high quality" stocks: Take your lumps in the speculative junk, and invest the proceeds in name-brand shares with reasonable valuations and dividend yields. Since I tend to avoid the consensus, I am looking at an investment concept completely different from that theme. Now might be the time to start speculating again!

Don't get me wrong. The recent pullback has brought many stocks down to reasonable valuation levels. Most stocks are more attractive than they have been in years. Valuations, which prompted my May call to sell all types of stocks, have returned to fair levels from overvalued ones in the spring.

For example, the Value Line Index has a median price-to-earnings ratio of 15, down from its all-time high of 21. Combined with a massive rally in government bonds, lower stock valuations should support a meaningful rally in the seasonally strong fourth quarter.

The best valuations exist in the small- and mid-cap sections of the stock market. I like most of the names in this sector that I have recommended in the past year, including those I sold in the spring.

Many decent businesses with respectable management teams and strong balance sheets can be purchased at 12 times price-to-earnings ratios or lower, including companies such as Liz Claiborne(LIZ Quote - Cramer on LIZ - Stock Picks) (11 times), Republic Services(RSG Quote - Cramer on RSG - Stock Picks) (12 times), and Monaco Coach(MNC Quote - Cramer on MNC - Stock Picks) (nine times).

Editor's note: Want to discover other stocks that Marcin thinks are ripe for the picking? Click here for a free trial to RealMoney to access all of our premium content. Once you've signed up, click here for Marcin's column. (This column appeared on RealMoney Sept. 30.)