NEW YORK ( TheStreet) -- There's an old adage about the best investments being made at the worst of times, and while the market may not be in nosedive mode right now, investors are far from hopeful these days.
The American Association of Individual Investors polls its members each week, asking how they feel about the stock market's prospects for the next six months, and the bears have been showing their claws of late. For the week ended Sept. 21, 48% of respondents identified themselves as bearish, up 6.7 percentage points from last week, and well ahead of the long-term average of 30%.
Given this trepidation, Sterne Agee's tech analysts went to work to find "names that are most compelling on valuation and risk/reward with fundamentals that are either not getting worse, or dare we say, might be showing some improvement."
The firm believes there's plenty of opportunity in the tech sector and chose to focus on companies with strong balance sheets and sound business models that it believes will be able to weather the storm if the economy endures another downturn. Because of all the concern about a double-dip recession and the Europe's uncertain sovereign debt situation, valuations are compelling."Yet, the same companies' stocks have been decimated and are trading near or at trough valuations and already discounting a recession," Sterne Agee writes in a research note released Tuesday. "In light of dichotomy of awful sentiment, cheap valuation, rapid stock declines, yet not deteriorating fundamentals, and in some cases, improving fundamentals (at least for now), we recommend investor buying a basket of cheap and beaten tech stocks with limited downside and compelling risk/reward." The stocks the firm would put in that basket are Micron Technology (MU) and SanDisk (SNDK) from the semiconductor space; Silicon Graphics (SGI) and EMC (EMC) offering exposure to data networking and storage; Ingram Micro (IM) and Research In Motion (RIMM) representing hardware and mobile devices; and Cree (CREE) serving as a play on the LED supply chain.
Sterne Agee has a buy rating and a 12-month price target of $14 on Micron, implying potential upside of more than 100% from current prices. The firm thinks weak DRAM pricing will make for a poor performance when the company reports its fiscal fourth-quarter results on Thursday but feels the picture brightens up from there as Micron continues to increase its focus on NAND flash memory products.
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